COBS 13 Annex 3 Charges information for a packaged product

1R

Charges

1

Appropriate charges information

1.1

Appropriate charges information9 comprises:

(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;

(3)

'reduction in yield' information; and5

5(4)

in relation to a personal pension scheme, the amounts (or if the amounts cannot be given, the formula by which the amounts can be calculated), if any, which a personal pension scheme operator or pension scheme trustee will receive as retained interest in relation to money held within the personal pension scheme.

1.2

Where a firm does not include a projection within its key features illustration the charges information can be on a generic basis.5

51.2A

The information described in 1.1(4) must be disclosed alongside information about any other charges the client will be expected to bear, and information about any interest that will be paid to clients on money held within a personal pension scheme bank account.

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)

[deleted]5;

(3)

[deleted]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 charge6 [£250 x y/100] that year. If your fund is valued at £500 throughout the year, this means we charge6 [£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).

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

3

Reduction in yield

3.1

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

(1)

'B' is the intermediate rate of return (for personal pension schemes and stakeholder pension schemes, net of price inflation, where appropriate)6 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 statements which explain that:6

6(1)

charges have the effect of reducing investment growth (after price inflation for personal pension schemes and stakeholder pension schemes) from 'B%' to 'C%', or in some other appropriate way; and

6(2)

the information about the reduction in investment growth can be used to compare the effect of charges with similar products.

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.