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COBS 13.1 The obligation to prepare product information

COBS 13.1.1 R RP

1A firm must prepare:2

  1. (1)

    a key features document for each packaged product, cash-deposit ISA and cash-deposit CTF it produces2; and2

  2. (2)

    a key features illustration for each packaged product it produces;2

in good time before 2those documents have to be provided.

Information on life policies5

COBS 13.1.2 R RP

A firm must prepare the Consolidated Life Directive information for each life policy it effects, in good time before that information has to be provided.

in good time before that information has to be provided.

[Note: article 36(1) of, and Annex III to, the Consolidated Life Directive]

Exceptions

COBS 13.1.3 R RP

A firm is not required to prepare:

  1. (1)

    a document, if another firm has agreed to prepare it; or

  2. (2)

    a key features document for:

    1. (a)

      a unit in a UCITS scheme or3 a simplified prospectus scheme; or

    2. (b)

      a unit in an EEA UCITS scheme which is a recognised scheme; or3

      3
    3. (c)

      a unit in a key features scheme, if it prepares a simplified prospectus, or the information appears with due prominence in another document, instead; or

    4. (d)

      a stakeholder pension scheme, or personal pension scheme that is not a personal pension policy, if the information appears with due prominence in another document; or

  3. (3)

    2 a key features illustration:3

    2
    1. (a)

      for a unit in a UCITS scheme or a simplified prospectus scheme; or3

    2. (b)

      for a unit in an EEA UCITS scheme which is a recognised scheme; or3

    3. (c)

      if it includes the information from the key features illustration in a key features document; or3

    4. (d)

      for a packaged product which, at the end of its fixed term, provides for the return of the initial capital invested and a specified level of growth linked by a pre-set formula to the performance of a specified asset or index or a combination of assets or indices; or5

  4. (4)

    the Consolidated Life Directive information, if the policy is a reinsurance contract or a pure protection contract.

COBS 13.1.4 R RP

A single document prepared for more than one key features scheme or3simplified prospectus scheme may combine more than one key features document, simplified prospectus or EEA simplified prospectus or any combination of them, if the schemes are offered through a platform service4 and the document clearly describes the difference between the schemes.

3 4

COBS 13.2 Product information: production standards, form and contents

COBS 13.2.1 G RP

1When a firm prepares documents or information in accordance with this chapter, the firm should consider the rules on providing product information (COBS 14). Those rules require a firm to provide the product information in a durable medium or via a website that meets the website conditions (if the website is not a durable medium).

[Note: article 29(4) of the MiFID implementing Directive]

COBS 13.2.2 R RP

A key features document and a key features illustration2must also:

  1. (1)

    (if it is a key features document) 2be produced and presented to at least the same quality and standard as the sales or marketing material used to promote the relevant product;

  2. (2)

    (if it is a key features document) 2display the firm's brand at least as prominently as any other;

  3. (3)

    (if it is a key features document or a key features illustration which does not form an integral part of the key features document) 2include the ‘Key facts’ logo in a prominent position at the top of the document; and

  4. (4)

    (if it is a key features document or a key features illustration which does not form an integral part of the key features document) 2include the following statement in a prominent position:

    “The Financial Services Authority is the independent financial services regulator. It requires us, [provider name], to give you this important information to help you to decide whether our [product name] is right for you. You should read this document carefully so that you understand what you are buying, and then keep it safe for future reference”.

COBS 13.2.3 G RP
COBS 13.2.4 R RP

The documents and information prepared in accordance with the rules in this chapter must not include anything that might reasonably cause a retail client to be mistaken about the identity of the firm that produced, or will produce, the product.

COBS 13.3 Contents of a key features document

General requirements

COBS 13.3.1 R RP

A key features document must:

  1. (1)

    include enough information about the nature and complexity of the product, how it works, any limitations or minimum standards that apply and the material benefits and risks of buying or investing for a retail client to be able to make an informed decision about whether to proceed; and

  2. (2)

    explain:

    1. (a)

      the arrangements for handling complaints about the product;

    2. (b)

      that compensation might be available from the FSCS if the firm cannot meet its liabilities in respect of the product (if applicable);

    3. (c)

      that a right to cancel or withdraw exists, or does not exist, and, if it does exist, its duration and the conditions for exercising it, including information about the amount a client may have to pay if the right is exercised, the consequences of not exercising it and practical instructions for exercising it, indicating the address to which any notice must be sent;

    4. (d)

      (for a CTF) that stakeholder CTFs, cash-deposit CTFs and 1security-based CTFs1 are available and which type the firm is offering; and

    5. (e)

      (for a personal pension scheme that is not an automatic enrolment scheme)2 clearly and prominently, that stakeholder pension schemes are generally available and might meet the client's needs as well as the scheme on offer.

Additional requirements for packaged products

COBS 13.3.2 R RP

Table

A key features document for a packaged product must:

(1)

Include the title: ‘key features of the [name of product]’;

(2)

describe the product in the order of the following headings, and by giving the following information under those headings:

Heading

Information to be given

‘Its aims’

A brief description of the product’s aims

‘Your commitment’ or ‘Your investment’

What a retail client is committing to or investing in and any consequences of failing to maintain the commitment or investment

‘Risks’

The material risks associated with the product, including a description of the factors that may have an adverse effect on performance or are material to the decision to invest

‘Questions and Answers’

(in the form of questions and answers) the principle terms of the product, what it will do for a retail client and any other information necessary to enable a retail client to make an informed decision.

Money market funds

COBS 13.3.3 R RP

3A key features document for a short-term money market fund, a money market fund or a qualifying money market fund must include a statement identifying it as such a fund and a statement that the authorised fund's investment objectives and policies will meet the conditions of the definition of short-term money market fund, money market fund or qualifying money market fund, as appropriate.

Feeder NURS

COBS 13.3.4 R RP

4A key features document for a feeder NURS must include:

  1. (1)

    a statement identifying it as such a scheme;

  2. (2)

    information specific to the feeder NURS and its qualifying master scheme which enables investors to understand the qualifying master scheme's key particulars; and

  3. (3)

    a description and explanation of any material differences between the risk profile of the feeder NURS and that of the qualifying master scheme.

COBS 13.3.5 G RP

4When producing the key features document, the authorised fund manager of the feeder NURS should have due regard to the provisions in COLL 4.6.8 R (Contents of the simplified prospectus) in terms of additional information appropriate to a feeder NURS and its qualifying master scheme. In particular, the appropriate charges information required by COBS 13.4.1 R and COBS 13 Annex 3 (Charges) should represent the aggregate of the charges of the feeder NURS and its qualifying master scheme as disclosed in the feeder NURS' most up-to-date prospectus.

COBS 13.4 Contents of a key features illustration

COBS 13.4.1 R RP

1 A key features illustration must include appropriate charges information and, if it is a packaged product which is not a financial instrument:

  1. (1)

    must include a standardised deterministic projection;

  2. (2)

    the projection and charges information must be consistent with each other ;

  3. (3)

    it may also include alternative projections except that the most prominent projection must be a standardised deterministic projection.

Exceptions

COBS 13.4.2 R RP

When the rules in this chapter require a key features illustration to be prepared, it must not take the form of a generic key features illustration:3

3
  1. (1)

    unless 3there are reasonable grounds for believing that it3 will be sufficient to enable a retail client to make an informed decision about whether to invest; or

    3
  2. (2)

    if it is part of a3direct offer financial promotion which contains a personal recommendation; or3

    3
  3. (3)

    if a personal pension scheme or a stakeholder pension scheme is facilitating the payment of an adviser charge; or3

  4. (4)

    if a group personal pension scheme or a group stakeholder pension scheme is facilitating the payment of a consultancy charge and the combined effect of the consultancy charges facilitated by the product and the product charges is not consistent for all investors in the relevant group or sub-group; or3

  5. (5)

    unless it is prepared for groups or sub-groups of employees in a group personal pension scheme or a group stakeholder pension scheme and it contains:3

    1. (a)

      a generic projection which is prepared in accordance with COBS 13 Annex 2 paragraph 1.3 and based on a default fund or other commonly selected fund;3

    2. (b)

      an effect of charges table calculated in accordance with COBS 13 Annex 4 R paragraph 2 and contains additional rows that show a range of typical periods to retirement age; and3

    3. (c)

      reduction in yield information which is calculated in accordance with COBS 13 Annex 4 R paragraph 3.3(2) and combines the product charge and, if applicable, the consultancy charge.3

COBS 13.4.3 G RP

A generic key features illustration3is unlikely to be sufficient to enable a retail client to make an informed decision about whether to invest if the premium or investment returns on the product will be materially affected by the personal characteristics of the investor.

3
COBS 13.4.4 R RP

There is no requirement to include a projection in a key features illustration:

  1. (1)

    for a single premiumlife policy bought as a pure investment product, a product with benefits that do not depend on future investment returns or any other product if it is reasonable to believe that a retail client will not need one to be able to make an informed decision about whether to invest; or

  2. (2)

    if the product is:

    1. (a)

      a SIPP from which no income withdrawals are being taken; or

      4
    2. (b)

      a life policy that will be held in a CTF or sold with basic advice (unless the policy is a stakeholder pension scheme).

COBS 13.4.5 G RP

Although there may be no obligation to include a projection in a key features illustration, where a firm chooses to include one, the projection must follow the appropriate requirements, as outlined in this section, or for financial instruments under COBS 4.6.7 R.

COBS 13.5 Preparing product information: other projections

Projections for in-force products

COBS 13.5.1 R RP

1A firm that communicates a projection for an in-force packaged product which is not a financial instrument:

  1. (1)

    must include a standardised deterministic projection;

  2. (2)

    may also include an alternative projection except that the most prominent projection must be a standardised deterministic projection; and

must follow the projectionrules in COBS 13 Annex 2.

Projections: other situations

COBS 13.5.2 R RP

A firm that communicates a projection for a packaged product which is not a financial instrument,

  1. (1)

    for which a key featureillustration is not required to be provided; and

  2. (2)

    which is not an in-force packaged product;

must ensure that such a projection is either a standardised deterministic projection or an alternative projection in accordance with COBS 13 Annex 2.

Exceptions to the projection rules: projections for more than one product

COBS 13.5.3 R RP

A firm that communicates a projection of benefits for a packaged product which is not a financial instrument, as part of a combined projection where other benefits being projected include those for a financial instrument or structured deposit, is not required to comply with the projection rules in COBS 13.4, COBS 13.5 and COBS 13 Annex 2 to the extent that it complies with the future performance rule (COBS 4.6.7 R).

COBS 13.5.4 G RP

The general requirement that communications be fair, clear and not misleading will nevertheless mean that a firm that elects to comply with the future performance rule in COBS 4.6.7 R will need to explain how the combined projection differs from other information that has been or could be provided to the client, including a projection provided under the projectionrules in COBS 13.4, COBS 13.5 and COBS 13 Annex 2.

COBS 13.6 Preparing product information: changes to adviser and consultancy charges

COBS 13.6.1 R RP

1A firm that agrees to start facilitating the payment of an adviser charge or consultancy charge, or an increase in such a charge, from an in-force packaged product, must prepare sufficient information for the retail client to be able to understand the likely effect of that facilitation, in good time before that information has to be provided.

COBS 13 Annex 1 The Consolidated Life Directive Information

This annex belongs to COBS 13.1.2 R (The Consolidated Life Directive Information)

Information about the firm

(1)

The firm's name and its legal form;

(2)

The name of the EEA State in which the head office and, where appropriate, agency or branch concluding the contract is situated; and

(3)

The address of the head office and, where appropriate, agency or branch concluding the contract.

Information about the commitment

(4)

Definition of each benefit and each option;

(5)

Term of the contract;

(6)

Means of terminating the contract;

(7)

Means of payment of premiums and duration of payments;

(8)

Means of calculation and distribution of bonuses;

(9)

Indication of surrender and paid-up values and the extent to which they are guaranteed;

(10)

Information on the premiums for each benefit, both main benefits and supplementary benefits, where appropriate;

(11)

For unit-linked policies, definition of the units to which the benefits are linked;

(12)

Indication of the nature of the underlying assets for unit-linked policies;

(13)

Arrangements for application of the cooling-off period;

(14)

General information on the tax arrangements applicable to the type of policy;

(15)

The arrangements for handling complaints concerning contracts by policyholders, lives assured or beneficiariesunder contracts including, wereappropriate, the existence of a complaints body, without prejudice to the right to take legal proceedings; and

(16)

Law applicable to the contract where the parties do not have a free choice or, where the parties are free to choose the law applicable, the law the insurer proposes to choose.

[Note: article 36(1) of, and Annex III to, the Consolidated Life Directive]

COBS 13 Annex 2 Projections

This annex belongs to COBS 13.4.1 R (Contents of a key features illustration), COBS 13.5.1 R (Projections for in-force products) and COBS 13.5.2 R (Projections: other situations).

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Projections

1

Calculating standardised deterministic projections

1.1

A standardised deterministic projection must:

(1)

include a projection of benefits at the lower, intermediate and higher rates of return;

(2)

be rounded down; and

(3)

show no more than three significant figures.

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1.2

Calculating projections: additional requirements for a pension scheme

(1)

A standardised deterministic projection within a key features illustration for a personal pension scheme or stakeholder pension scheme must include or be accompanied by information explaining the impact of inflation on those benefits.

(2)

Where a firm chooses to provide that information required in (1) in the form of one or more projections of benefits, it must include a projection in real terms, so long as it is either:

(a)

calculated using:

(i)

the appropriate intermediate rate of return;

(ii)

the intermediate rate of price inflation, in accordance with COBS 13 Annex 2 2.5R; and

(iii)

an annuity calculated in accordance with COBS 13 Annex 2 3.1R; or

(b)

consistent with the statutory money purchase illustration assumptions, with any material differences between the assumptions used and those otherwise required for accompanying standardised deterministic projections explained.

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1.3

(1)

If a generic projection is prepared for a stakeholder pension scheme or personal pension scheme in circumstances where a generic key features illustration is permitted under COBS 13.4.2 R,6 sufficient separate projections, covering a range of different contractual periods and contributions, must be included for a retail client to be able to make an informed decision about whether to invest.

(2)

A projection prepared on that basis may omit benefits in nominal terms and only show a range of figures at the intermediate rate of return, of benefits in real terms.

G

1.4

A firm will provide sufficient separate projections if it prepares a table that shows projections in real terms for a variety of periods to maturity and a variety of contribution levels, taking into account the charges and other material terms that apply to the stakeholder pension scheme or personal pension scheme. Such a table could be laid out like a specimen benefits table (see COBS 13 Annex 2 1.8).

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Calculating an alternative projection

1.5

An alternative projection must:

(1)

(if the alternative projection is not a stochastic projection) not exceed the higher rate of return;

(2)

(if the alternative projection is not a stochastic projection), use assumptions consistent with the assumptions which apply to standardised deterministic projections in this Annex, unless the reasons for any inconsistency are:

(a)

reasonable;

(b)

explained to a retail client, with enough information for the retail client to be able to understand the difference between the alternative projection and any standardised deterministic projection being provided; and

(3)

(if the alternative projection is a stochastic projection) only be used if:

(a)

there are reasonable grounds for believing that a retail client will be able to understand it;

(b)

it is based on a reasonable number of simulations and assumptions which are reasonable and supported by objective data; and

(c)

the alternative projection is accompanied by enough information for the retail client to be able to understand the difference between the alternative projection and any standardised deterministic projection being provided.

G

1.6

An alternative projection may be used either as part of a key features illustration or separately. However, it must not detract from any standardised deterministic projection required by COBS 13.4.1 R or COBS 13.5.1 R.

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Exceptions

1.7

A projection:

(1)

for a product that will mature in six months or less; or

(2)

prepared in order to determine the maximum level of contributions permitted to be made to a personal pension scheme,

may be prepared and presented on any reasonable basis but only if, in the case of (2), the assumptions used to calculate the projection and contributions are disclosed with the relevant projection.

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1.8

In the case of a stakeholder pension scheme in circumstances where a generic key features illustration is permitted under COBS 13.4.2 R,6 the specimen benefits table, contained within the "Stakeholder pension decision tree" factsheet available on 24www.moneyadviceservice.org.uk4 and headed "Pension Table...How much should I save towards a pension?" which sets out initial monthly pension amounts, may be used instead of a standardised deterministic projection but only if it is accompanied by an explanation of the caveats and assumptions behind the table.

2

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1.9

The rules in this Annex do not apply to a projection which is consistent with the statutory money purchase illustration requirements.

R

1.10

A personal pension scheme or stakeholder pension scheme taken out before 6 April 2014 may omit the standardised deterministic projection for existing business may omit the projection at the intermediate rate of return

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2

Assumptions to follow when calculating projections.

Assumptions: projection date

2.1

A standardised deterministic projection must be calculated to the projection date described below:

Product

Projection date

(1)

A contract which is a whole life assurance the premiums under which are regular premiums

The anniversary of the commencement date:

(a) which first falls after the seventy-fifth birthday of the life assured; or

(b) (if there is more than one life assured) the anniversary of the commencement date which falls after the seventy fifth birthday of:

(i) (if benefits are payable on the first death) the oldest life assured; or

(ii) (in all other cases) the youngest life assured;

subject to a minimum projection date of ten years.

(2)

A contract that is not in (1):

(a) where the relevant marketing refers to a surrender value or an option to take benefits before they would otherwise be paid; or

(b) that is open-ended, or linked to one or more lives, which is not a personal pension scheme or stakeholder pension scheme

An appropriate date which highlights the features of the product

(3)

A contract that is not in (1) or (2) and has a specified maturity date

The maturity date specified in the contract

(4)

A contract that is not in (1) or (2) or (3)

The tenth anniversary of the commencement date

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Assumptions: contributions

2.2

A standardised deterministic projection must:

(1)

take account of all contributions due during the projection period;

(2)

be calculated on the basis that contributions are accumulated, net of charges, at the appropriate rate of return compounded on an annual basis;

(3)

(if it includes assumptions about contribution increases in line with an index) be based on an assumption that contribution increases are consistent with any assumptions regarding that index in this annex; and

(4)

deduct from contributions any rider benefits or extra premium which may be charged for an increased underwriting risk.

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Assumptions: rates of return

2.3

A standardised deterministic projection must be calculated using the following rates of return:

Nominal rates

Lower rate

Inter-mediate rate

Higher rate

tax-exempt business held in a wrapper or by a friendly society

personal pension schemes, stakeholder pension schemes and investment-linked annuities

5%

7%

9%

all other products

4%

6%

8%

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Exception

2.4

A standardised deterministic projection:

(1)

must be calculated using lower rates of return, if the rates described in this section overstate the investment potential of the product;

(2)

may be calculated using a lower rate of return if a retail client requests it.

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Assumptions: inflation

2.5

If inflation is taken into account, the standardised deterministic projection must be calculated using the following rates:

Lower rate

Inter-mediate rate

Higher rate

Price inflation

0.50%

2.50%

4.50%

Earnings inflation

>2%

>4%

>6%

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Assumptions: charges

2.6

The charges allowed for in a standardised deterministic projection:

(1)

must properly reflect:

(a)

all of the charges, expenses and deductions a client will, or may expect to be taken after investment into the product;6

6

(b)

the tax relief available to the firm in respect of so much of the firm's gross expenses as can properly be attributed to the contract; and

(c)

the fact that certain charges will be fully or partially off-set, but only to the extent that the firm can show that the off-set funds will be available when the relevant charges arise; and

(2)

must not include the firm's dealing costs incurred on the underlying portfolio.

G

2.7

(1)

Development and capital costs should normally be written off in the year in which they are incurred. However, some costs (for example, exceptional new business expenses) may be amortised and previous years’ costs may then be brought into account.

(2)

If it is reasonable to assume that higher expenses will be incurred in the future, appropriate allowances should be made, and any inflation assumptions should be consistent with those prescribed in these rules.

(3)

Expenses should be apportioned appropriately between products so that scales of expenses can be calculated and applied.

(4)

Where appropriate, mortality and morbidity should be allowed for on a best estimate basis. The basis for annuities should allow for future improvements in mortality.

(5)

A projection should not assume that charges will fall over time to a rate that is lower than the rate currently being charged on the relevant product (or, if there is no such charge, on a similar product).

(6)

A projection of surrender value, cash-in value or transfer value should take into account any specific current surrender value basis and penalties which may be applied.

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Additional requirements: with-profits policies

2.8

(1)

A standardised deterministic projection for a with-profits policy must properly reflect the deductions from asset share which a firm expects to make in accordance with its deductions plan.

(2)

A standardised deterministic projection for a with-profits policy where bonus rates apply must assume that the bonus rates supported by the relevant premium and rate of return apply throughout the term of the contract.

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Additional requirements: drawdown5 pensions

5

2.9

(1)

A standardised deterministic projection for a drawdown pension5 must be based on the requirements contained in (2) to the extent that they impose additional or conflicting requirements to the balance of the rules in this section.

5

(2)

A standardised deterministic projection for a drawdown pension5 must be based on an assumption that the current gilt-index yield will continue to apply throughout the relevant term and include:

5

(a)

where relevant 5the maximum initial income specified in the tables published by the Government Actuaries Department for a drawdown pension;5

5

(b)

the assumed level of income;

(c)

for a short-term annuity, where subsequent short-term annuities are assumed, a statement reflecting that fact;

(d)

(under the heading 'What the benefits might be'), the amount of income and the projected value of the fund at each fifth anniversary for the lower, intermediate and higher rate of return for as long as the fund is projected to exist at the higher rate of return;5

5

(e)

the projected open market values and the amounts of annuity that might be purchased after 10 years;5 and

5

(f)

the amount of annuity that could be secured using an immediate annuity rate available in the market.

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3

How to calculate a projection for a future annuity

3.1

A projection for a future annuity must:

(1)

be calculated by rounding all factors to three decimal places before applying them to the relevant retirement fund;

(2)

use a mortality rate based on the year of birth rate derived from each of the Institute and Faculty of Actuaries’ Continuous Mortality Investigation tables PCMA00 and PCFA00 and including mortality improvements derived from each of the male and female annual mortality projection models, in equal parts;8

8

(3)

[deleted]7

7

(4)

(for an annuity where two lives are concerned):

(a)

reflect the age difference between the two lives; or

(b)

be based on the assumption that the male life is three years older than the female (if the genders differ) or the two lives have the same age (if the genders are the same);

(5)

include an expenses allowance of 4%;

(6)

be based on the following rates of return as appropriate:

R

Lower rate

Intermediate rate

Higher rate

Level or fixed rate of increase annuities

Y+1.5%

Y+3.5%

Y+5.5%

RPI or LPI linked annuities

Y-1%

Y

Y+1%

R

where:

'Y' is 0.5* (ILG0 + ILG5)-0.5 rounded to the nearest 0.2%, with an exact 0.1% rounded down; and

'ILG0' and 'ILG5' are the real yield on the FTSE Actuaries Government Securities Index-linked Real Yields over 5 years, assuming 0% and 5% inflation respectively, updated every 6 April to use the ILG0 and ILG5 which applied on or, if necessary, the business day immediately before, the preceding 15 February; and

(7)

(in the case of a future annuity with less than one year to maturity) be calculated using annuity rates that are no more favourable than the firm's relevant current immediate annuity rate or (if there is no such rate) the relevant immediate annuity rate available in the market; and

(8)

be assumed to be payable monthly in advance with a guaranteed period of 5 years, unless it is unreasonable to do so.

8E

3.1A

For any year commencing 6 April, the use of the male and female annual CMI Mortality Projections Models in the series CMI(20YY-1)_M_[1.25%] and CMI(20YY-1)_F_[1.25%], where YY-1 is the year of the Model used, will tend to show compliance with COBS 13 Annex 2 3.1 R (2).

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3.2

A projection for a future annuity:

(1)

must be calculated using lower rates of return , if the rates described in this section overstate the investment potential of the product;

(2)

may be calculated using a lower rate of return if a retail client requests it.

4

[deleted]7

7

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5

How to present a projection

5.1

A standardised deterministic projection must be accompanied by:

(1)

appropriate risk warnings, including warnings about volatility , the relationship between figures in real terms and those in nominal terms, and the degree to which any figures can be relied upon; and

(2)

a statement:

(a)

that projection rates are standardised or an explanation that projection rates that are lower than the standard rates have been used and why;

(b)

that charges may vary;

(c)

of the contributions that have been assumed;

(d)

that increases in contributions have been assumed (if that is the case), together with sufficient information for a retail client to be able to understand the nature and magnitude of the assumed increases; and

(e)

of the sum of any actual premiums charged for any rider benefits or increased underwriting risks (where these have been charged).

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Additional requirements: pension schemes and products linked to other products

5.2

A standardised deterministic projection for a product where the benefits illustrated depend on a link to a separate product must include an appropriate description of the material factors that might influence the returns available overall and any restrictions assumed in providing an illustration of benefits in relation to that separate product.

COBS 13 Annex 3 Charges information for a packaged product

(except for a personal pension scheme and a stakeholder pension scheme where adviser charges or consultancy charges are to be facilitated by the product)4

This annex belongs to COBS 13.4.1 R (Contents of a key features illustration)

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Charges

1

Appropriate charges information

1.1

Appropriate charges information 9 comprises:

9

(1)

4(a)

a description of the nature and amount of the charges a client will or may be expected to bear in relation to the product and, if applicable, any investments within the product;

4(b)

if applicable, a description of the nature and amount of the adviser charges a retail client has agreed may be taken, including whether it is taken before or after investment into the product;

(2)

an 'effect of charges' table; and

(3)

'reduction in yield' information.

1.2

Where a firm does not include a projection within its key features illustration the charges information can be on a generic basis.

Exceptions

1.3

An effect of charges table and reduction in yield information are not required for:

(1)

a life policy without a surrender value, but an appropriate warning must be included to make it clear that the policy has no cash-in value at any time;

(2)

a SIPP;

(3)

[deleted]4

4

(4)

a stakeholder product or a product that will be held in a CTF where the relevant product and the CTF levy their charges annually, if the following is included instead:

“There is an annual charge of y% of the value of the funds you accumulate. If your fund is valued at £250 throughout the year, this means we deduct [£250 x y/100] that year. If your fund is valued at £500 throughout the year, this means we deduct [£500 x y/100] that year. [After ten years these deductions reduce to [£250 x r/100] and [£500 x r/100] respectively.]”

where ‘y’ is the annual charge and ‘r’ is the reduced annual charge (if any).

4 4

1.4

Reduction in yield information is not required for a without profits life policy with guaranteed benefits (except on surrender or variation), a life policy with a term not exceeding five years or a life policy that will be held in a CTF.

R

2

Effect of charges table

2.1

Each ‘effect of charges’ table must be accompanied by, or refer to:

(1)

a statement that all relevant guarantees have been taken into account (if there are any);

(2)

a warning that one effect of the charges referred to is that a retail client could get back less than they invest (if that is the case); and

(3)

the rate of return used to calculate the figures in the table.

2.2 The effect of charges table:

(1) for a life policy must be in the following form unless the firm chooses to adopt the form of the effect of charges table in COBS 13 Annex 4 :4

4

R

Note 1A

Note 2

Note 3

Note 4

Note 5

Note 6

At end of year

Total paid in to date

With-drawals

Total actual deductions to date

Effect of deductions to date

What you might get back

£

£

£

£

£

1

...

5

10

...

(2) for any other packaged product must be in the following form:

R

Note 1B

Note 2

Note 3

Note 5

Note 6

At end of year

Investment to date

Income

Effect of deductions to date

What you might get back

£

£

£

£

1

5

10

...

(3) must be completed in accordance with the following notes:

R

Note 41A

(a)

This column must include the first five years, every subsequent fifth year and the final year of the projection period.

(b)

Figures may be shown for every subsequent tenth year rather than subsequent fifth year where the projection period exceeds 25 years, or for whole of life policies.

(c)

For whole of life policies, should the projected fund reach zero before the end of the projection period this must be highlighted.

(d)

[deleted]4

3 4

(e)

If there is discontinuity in the trend of surrender values, the appropriate intervening years must also be included.

(f)

Figures for a longer term may be shown.

Note 41B

(a)

This column must include the first year, the fifth year and every subsequent fifth year of the projection period.

(b)

[deleted]3

3

(c)

Figures for a longer term may be shown.

Note 42

This column must show the cumulative contributions paid to the end of each relevant year.

Note 43

This column must show the cumulative withdrawals taken or income paid to the end of each relevant year (if any). The column may be omitted if withdrawals or income are not anticipated or allowed.

Note 44

This column is optional. If it is retained, it must show the total actual deductions to the end of each relevant year calculated using the following method:

(a)

apply the intermediate rate of return for the relevant product to the figure in the ‘effect of deductions to date’ column for the previous year;

(b)

subtract this figure from 2the figure in the ‘effect of deductions to date’ column for the year being shown; and

2

(c)

add the resulting figure to the figure in the ‘total actual deductions to date’ column for the previous year (if any).

Note 45

This column may be deleted if the product is a without profits life policy with benefits that are guaranteed except on surrender or variation, a life policy with a term not exceeding five years, or a life policy that will be held in a CTF.

If this column is not deleted, the ‘effect of deductions to date’ figure must be calculated by taking the accumulated value of the fund without reference to charges and then subtracting from this figure the figure in the ‘what you might get back column’ for the same year.

Note 46

This column must show standardised deterministic projection of the surrender value, cash-in value or transfer value, calculated in accordance with the rules in COBS 13 Annex 2 (Projections) at the appropriate intermediate rate of return to the end of each relevant year.

R

Exception

2.3

An effect of charges table may be amended, but only if and to the extent that is necessary to properly reflect the nature and effect of the charges inherent in a particular product.

G

2.4

The effect of 2.3R is that, for example, the column labels and explanatory text may be adjusted to reflect the nature of the contract.

4

R

3

Reduction in yield

3.1

Reduction in yield (‘A’) is ‘B’ less ‘C’ where:

(1)

'B' is the intermediate rate of return for the relevant product; and

(2)

'C' is determined by:

(a)

carrying out a standardised deterministic projection to the projection date, using ‘B’; and then

(b)

calculating the annual rate of return (‘C’) (rounded to the nearest tenth of 1 %) required to achieve the same projection value if charges are left out of account.

3.2

A firm must present reduction in yield as ‘A%’, as part of a statement which explains that ‘charges and expenses have the effect of reducing your anticipated returns from ‘B%’ to ‘C%’, or in some other appropriate way.

3.3

If contributions will be invested in more than one fund in a single designated investment or made by an initial lump sum payment that is followed by regular contributions, the reduction in yield must be:

(1)

calculated separately for each fund or for the single contribution and the regular contributions (as the case may be); and

(2)

presented:

(a)

on a fund by fund, or single contribution and regular contribution, basis, together with a statement which explains the nature and effect of a reduction in yield, the reason for the inclusion of more than one reduction in yield figure and the reason for the differences between them; or

(b)

(if the reduction in yield results are so similar that one figure could reasonably be regarded as representative of the others), as a single figure together with a statement which explains the nature and effect of a reduction in yield, and that the reduction in yield figure given is representative of the reduction in yield figures for each of the funds or for the single and regular contributions (as the case may be); or

(c)

through a single figure combining the separate figures for each fund or contribution in a proportionate manner, with an appropriate description.

3.4

Where a firm is calculating reduction in yield information, it must:

(1)

disregard charges related to mortality and morbidity risks; or

(2)

(where the requirement in (1) produces figures that are misleading) include a statement with the reduction in yield information that it has been calculated taking into account charges related to mortality and morbidity risk.

COBS 13 Annex 4 Charges information for a personal pension scheme and a stakeholder pension scheme

(where adviser charges or consultancy charges are facilitated by the product)

This annex belongs to COBS 13.4.1 R (Contents of a key features illustration)

1R

Charges

1

Appropriate charges information

1.1

Appropriate charges information comprises:

(1)

(a)

a description of the nature and amount of the charges a client will or may be expected to bear in relation to the product and, if applicable, any investments within the product;

(b)

if applicable, a description of the nature and amount of the adviser charges and consultancy charges a retail client or employer has agreed may be taken before investment into the product;

(c)

if applicable, a description of the nature and amount of the adviser charges and consultancy charges a retail client or employer has agreed may be taken after investment into the product;

(2)

an ‘effect of charges’ table; and

(3)

‘reduction in yield’ information.

Exception

1.2

An effect of charges table and reduction in yield information are not required for a stakeholder pension scheme, where adviser charges or consultancy charges are not being facilitated by the scheme, if the following is included instead:

“There is an annual charge of y% of the value of the funds you accumulate. If your fund is valued at £500 throughout the year, this means we deduct [£500 x y/100] that year. If your fund is valued at £7500 throughout the year, we will deduct [£7500 x y/100] that year.”

R

2

Effect of charges table

2.1

Each effect of charges table must be accompanied by:

(1)

an explanation of what the table shows;

(2)

a statement that all relevant guarantees have been taken into account (if there are any);

(3)

a warning that one effect of the charges referred to is that a retail client could get back less than they invest (if that is the case); and

(4)

the rate of returnused to calculate the figures in the table.

2.2

Subject to Note 2 below, an effect of charges table must be in the following form:

Note 1

Note 2

Note 3

Note 4

Note 5

Note 6

At end of year

Total paid in to date

Withdrawals

If there were no charges

If only product and investment charges are taken

After all charges are taken

£

£

£

£

£

1

...

5

At age [xx]

Note 1

This column must include at least the first, third and fifth year and the intended date of retirement.

For a drawdown pension, figures must be included for each of the first ten years, or less if the value of the fund is projected at the higher rate of return to reach zero before then.

Note 2

This column is optional. If it is retained it must show the cumulative contributions paid to the end of each relevant year.

Note 3

This column must show the cumulative withdrawals intended to be taken to the end of each relevant year. The column may be omitted if withdrawals are not anticipated or allowed.

Note 4

This column must show a standardised deterministic projection of the benefits, calculated in accordance with the rules in COBS 13 Annex 2 (Projections) at the appropriate intermediate rate of return to the end of each relevant year, but without taking any charges into account.

Note 5

This column must show a standardised deterministic projection of the benefits, calculated in accordance with the rules in COBS 13 Annex 2 (Projections) at the appropriate intermediate rate of return to the end of each relevant year, but taking into account only the charges described in COBS 13 Annex 4 R paragraph 1.1(1)(a).

Note 6

This column must show a standardised deterministic projection of the benefits, calculated in accordance with the rules in COBS 13 Annex 2 (Projections) at the appropriate intermediate rate of return to the end of each relevant year taking into account all charges described in COBS 13 Annex 4 R paragraph 1.1(1)(a) and (c).

Where both adviser charges and consultancy charges are being facilitated from a product this column should show the combined effect of those charges.

This column may be omitted if there are no adviser charges or consultancy charges.

R

Exception

2.3

An effect of charges table may be amended, but only if and to the extent that it is necessary to properly reflect the nature and effect of, for example, the adviser charges, consultancy charges or the charges inherent in a particular product.

G

2.4

The effect of COBS 13 Annex 4 paragraph 2.3R is that, for example, the column labels and explanatory text may be adjusted to reflect the nature of the contract or the terminology used.

2.5

An effect of charges table must be appropriately titled, for example, ‘How the charges reduce the value of your pension fund’.

R

3

Reduction in yield

3.1

Product reduction in yield (‘A’) is ‘B’ less ‘C’ where:

(1)

‘B’ is the intermediate rate of return for the relevant product; and

(2)

‘C’ is determined by:

(a)

carrying out a standardised deterministic projection to the projection date, but without taking any adviser charges or consultancy charges into account, using ‘B’; and then

(b)

calculating the annual rate of return (‘C’) (rounded to the nearest tenth of 1 %) required to achieve the same projection value if charges are excluded.

3.2

Total reduction in yield (‘D’) is ‘B’ less ‘E’ where:

(1)

‘B’ is the intermediate rate of return for the relevant product; and

(2)

‘E’ is determined by:

(a)

carrying out a standardised deterministic projection to the projection date taking all charges into account, using ‘B’; and then

(b)

calculating the annual rate of return (‘E’) (rounded to the nearest tenth of 1 %) required to achieve the same projection value if charges are excluded.

3.3

(1)

A firm must present the product reduction in yield as ‘A%’, as part of a statement which explains that ‘product charges reduce your anticipated rate of returns from ‘B%’ to ‘C%’’, or in some other appropriate way.

(2)

If adviser charges or consultancy charges, or both adviser charges and consultancy charges are to be facilitated by the product, a firm must also present the reduction in yield as ‘D%’, as part of a statement which explains that ‘all charges reduce your anticipated rate of returns from ‘B%’ to ‘E’%’’, or in some other appropriate way and explain the difference between the two reduction in yield figures.

3.4

If contributions will be invested in more than one fund in a single designated investment or made by an initial lump sum payment that is followed by regular contributions, the reduction in yield must be:

(1)

calculated separately for each fund or for the single contribution and the regular contributions, as applicable; and

(2)

presented:

(a)

on a fund-by-fund, or single contribution and regular contribution, basis, together with a statement which explains the nature and effect of a reduction in yield, the reason for the inclusion of more than one reduction in yield figure and the reason for the differences between them; or

(b)

(if the reduction in yield results are so similar that one figure could reasonably be regarded as representative of the others) as a single figure together with a statement which explains the nature and effect of a reduction in yield, and that the reduction in yield figure given is representative of the reduction in yield figures for each of the funds or for the single and regular contributions, as applicable; or

(c)

through a single figure combining the separate figures for each fund or contribution in a proportionate manner, with an appropriate description.