7This section applies to a firm which gives advice on pension transfers, pension conversions and pension opt-outs to a retail client in relation to:
7When a firm uses a pension transfer specialist to check its proposed advice on pension transfers, pension conversions and pension opt-outs, it should ensure that the pension transfer specialist takes the following steps:
checks the entirety and completeness of the advice;
7A firm must make a personal recommendation when it provides advice on conversion or transfer of pension benefits.
The requirement in (2)(b) does not apply if either:
7COBS 9 contains suitability requirements which apply if a firm makes a personal recommendation in relation to advice on conversion or transfer of pension benefits.
- (1) 5555
give the retail client7 a copy of the comparison, drawing the retail client's7 attention to the factors that do and do not support the firm's personal recommendation7, in good time, and in any case 5no later than when the key features document is provided; and
In particular, the comparison should:
take into account all of the retail client's relevant circumstances;
- (2) 3
explain the assumptions on which it is based and the rates of return that would have to be achieved to replicate the benefits being given up;35
- (4) 35
where an immediate crystallisation of benefits is sought by the retail client prior to the ceding arrangement’s7 normal retirement age, compare the benefits available from crystallisation at normal retirement age under that arrangement7.5
(a) the annuity interest rate is the intermediate rate of return appropriate for a level or fixed rate of increase annuity in 2COBS 13 Annex 2 3.1R(6)2 unless COBS 19.1.4B R applies3 or the rate for annuities in payment (if less);344
(c) the average earnings index and the rate for section 1487 orders is
(e) the annuity interest4 rate for3 post-retirement limited price indexation based on the RPI4 with maximum pension4 increases less than or equal to 3.5% or with minimum pension4 increases more than or equal to 3.5% is the rate in (a) above allowing for increases at the maximum rate of pension increase4; otherwise it is the rate in (f) below;343
(f) the index linked annuity interest4 rate for pension benefits linked to the RPI4 is the intermediate rate of return in 2COBS 13 Annex 2 3.1 R (6)2 for annuities linked to the RPI4 unless COBS 19.1.4B R applies;344
(g) the mortality rate used to determine the annuity is based on the year of birth rate derived from each of the Institute and Faculty of Actuaries’ Continuous Mortality Investigation tables PMA086 and PFA086 and including mortality improvements derived from each of the male and female annual mortality projections models, in equal parts;3
4(i) the index linked annuity interest rate for pension benefits linked to the CPI is the intermediate rate of return in COBS 13 Annex 2 3.1R(6) for annuities linked to the RPI plus 0.5% unless COBS 19.1.4B R applies in which case it is the annuity rate in COBS 19.1.4B R plus 0.5%;
4(j) the annuity interest rate for post-retirement limited price indexation based on the CPI with maximum pension increases less than or equal to 3.0% or with minimum pension increases more than or equal to 3.5% is the rate in (a) above allowing for increases at the maximum rate of pension increase; where minimum pension increases are more than or equal to 3% but less than 3.5% the annuity rate is the rate in (a) above allowing for increases at the minimum rate of pension increase otherwise it is the rate in (i) above;
or use more cautious assumptions;
[Note: section 148 orders are orders made by the Secretary of State under section 148 of the Social Security Administration Act 1992. Section 148(7) of this Act provides that orders made previously under section 21 of the Social Security Pensions Act 1975 will be treated as orders made under section 148.]7
calculate the interest rate in deferment; and
have regard to benefits which commence at difference times.
When a firm is making a personal recommendation for a retail client who is, or is eligible to be, a member of a pension scheme with safeguarded benefits and who is considering whether to transfer, convert or opt-out, a firm should start by assuming that a transfer, conversion or opt-out will not be suitable.7
A firm should only consider a transfer, conversion or opt-out to be suitable if it can clearly demonstrate, on contemporary evidence, that the transfer, conversion or opt-out is in the retail client’s best interests.7
If a firm has carried out the comparison in COBS 19.1.2R and it has indicated7 a rate of return which may replicate the benefits being given up from the arrangement with safeguarded benefits, the firm should not regard this7 as sufficient in itself to ensure a personal recommendation is suitable7.35
a summary of the advantages and disadvantages of its personal recommendation;
an analysis of the financial implications (if the recommendation is to opt-out); and
a summary of any other material information.