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COBS 19.1 Pension transfers and opt-outs

Preparing and providing a transfer analysis

COBS 19.1.1RRP

1If an individual who is not a pension transfer specialist gives a personal recommendation about a pension transfer or pension opt-out on a firm's behalf, the firm must ensure that the recommendation is checked by a pension transfer specialist.

COBS 19.1.2RRP

A firm must:

  1. (1)

    compare the benefits likely (on reasonable assumptions) to be paid under a defined benefits pension scheme with the benefits afforded by a personal pension scheme or stakeholder pension scheme , before it advises a retail client to transfer out of a defined benefits pension scheme;

  2. (2)

    ensure that that comparison includes enough information for the client to be able to make an informed decision;

  3. (3)

    give the client a copy of the comparison, drawing the client's attention to the factors that do and do not support the firm's advice, no later than when the key features document is provided; and

  4. (4)

    take reasonable steps to ensure that the client understands the firm's comparison and its advice.

COBS 19.1.3GRP

In particular, the comparison should:

  1. (1)

    take into account all of the retail client's relevant circumstances;

  2. (2)

    have regard to the benefits and options available under the ceding scheme and the effect of replacing them with the benefits and options under the proposed scheme; and

  3. (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.

COBS 19.1.4RRP

When a firm compares the benefits likely to be paid under a defined benefits pension scheme with the benefits afforded by a personal pension scheme or stakeholder pension scheme (COBS 19.1.2R (1)), it must:

  1. (1)

    assume that:

    (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) or the rate for annuities in payment (if less)

    (b) the retail prices index is

    2.5%

    (c) the average earnings index and the rate for section 21 orders is

    4.0%

    (d) the pre-retirement limited price indexation revaluation is

    2.5%

    (e) the post-retirement limited price increases at

    2.5%

    (f) the index linked pensions rate is the intermediate rate of return in 2COBS 13 Annex 2 3.1 R (6)2 for annuities linked to the retail prices index;

    or use more cautious assumptions;

  2. (2)

    calculate the interest rate in deferment; and

  3. (3)

    have regard to benefits which commence at difference times.

COBS 19.1.5RRP

If a firm arranges a pension transfer or pension opt-out for a retail client as an execution-only transaction, the firm must make, and retain indefinitely, a clear record of the fact that no personal recommendation was given to that client.

Suitability

COBS 19.1.6GRP

When advising a retail client who is, or is eligible to be, a member of a defined benefits occupational pension scheme whether to transfer or opt-out, a firm should start by assuming that a transfer or opt-out will not be suitable. A firm should only then consider a transfer or opt-out to be suitable if it can clearly demonstrate, on contemporary evidence, that the transfer or opt-out is in the client's best interests.

COBS 19.1.7GRP

When a firm advises a retail client on a pension transfer or pension opt-out, it should consider the client’s attitude to risk in relation to the rate of investment growth that would have to be achieved to replicate the benefits being given up.

COBS 19.1.8GRP

When a firm prepares a suitability report it should include:

  1. (1)

    a summary of the advantages and disadvantages of its personal recommendation;

  2. (2)

    an analysis of the financial implications (if the recommendation is to opt-out); and

  3. (3)

    a summary of any other material information.

COBS 19.1.9GRP

If a firm proposes to advise a retail client not to proceed with a pension transfer or pension opt-out, it should give that advice in writing.