1The following definitions are used in this appendix:

1. (1)

   ‘additional compensation sum’ is the redress sum calculated in accordance with DISP App 4.3.29R(3);

2. (2)

   ‘annual allowance’ is the maximum amount that can be added to an individual’s pension each tax year without the individual being liable for an annual allowance tax charge;

3. (3)

   ‘annual allowance tax charge’ includes:

   1. (a)

      the standard annual allowance limit of £40,000 saved into a pension in the current tax year; and

   2. (b)

      the money purchase annual allowance which is triggered when a consumer has flexibly accessed their pension, which reduces their annual allowance to £4,000; and

   3. (c)

      the tapered annual allowance which reduces the annual allowance for those earning above £200,000;

4. (4)

   ‘assumptions’ are the economic, demographic and other assumptions to be used in the redress calculation set out at DISP App 4 Annex 1;

5. (5)

   ‘augmentation’ is the payment of redress into the consumer’s chosen defined contribution pension scheme;

6. (6)

   ‘calculation date’ is the date on which the firm completes the calculation at Step 3 at DISP App 4.3.19R;

7. (7)

   ‘commencement date’ is 1 April 2023;

8. (8)

   ‘compliant pension transfer advice’ is advice to a consumer on the conversion or transfer of pension benefits from a defined benefit occupational pension scheme to a DC pension arrangement, which complies with the following:

   1. (a)

      (as applicable) the suitability requirements in COBS 9 and COBS 19.1; and

   2. (b)

      the common law duty in contract or tort to exercise reasonable skill and care in advising the consumer; and

   3. (c)

      (where the advice is to remain in the defined benefit occupational pension scheme and the firm arranges the pension transfer or pension conversion) a firm’s obligations when dealing with insistent clients (from 1 January 2018, see COBS 9.5A);

9. (9)

   ‘DC pension arrangement’ means any pension arrangement holding the value of the consumer’s pension benefits which originated from the non-compliant pension transfer advice, including where the arrangement has been subsequently changed to a new arrangement;

10. (10)

    ‘defined contribution pension scheme’ means an occupational or non-occupational pension scheme with a right or entitlement to flexible benefits;

11. (11)

    ‘non-compliant pension transfer advice’ is advice to a consumer on the conversion or transfer of pension benefits from a defined benefit occupational pension scheme to a DC pension arrangement, which does not comply with one or more of the following:

    1. (a)

       (as applicable) the suitability requirements in COBS 9 and COBS 19.1;

    2. (b)

       the common law duty in contract or tort to exercise reasonable skill and care in advising a consumer; or

    3. (c)

       (where the advice is to remain in the defined benefit occupational pension scheme and the firm arranges the pension transfer or pension conversion) a firm’s obligations when dealing with insistent clients (from 1 January 2018, see COBS 9.5A);

12. (12)

    ‘non-joiner’ is a consumer who declined or failed to join an occupational pension scheme for which they were or are eligible, while continuing in the relevant employment;

13. (13)

    ‘normal retirement age’ is the earliest age at which the consumer could have retired from the defined benefit occupational pension scheme without both their employer’s consent and actuarial reduction;

14. (14)

    ‘payment date’ is the date that the redress is paid to the consumer;

15. (15)

    ‘pension tranche’ is an element of pension benefit which typically has a unique combination of revaluation increases before coming into payment and pension increases during payment, but may also have a unique payment starting age or payment end age;

16. (16)

    ‘primary compensation sum’ is the redress sum calculated in accordance with DISP App 4.3.20R;

17. (17)

    ‘quarter’ is the period of 3 months commencing 1 January, 1 April, 1 July and 1 October in each year;

18. (18)

    ‘redress offer’ is an offer of redress made to a consumer after a firm has determined that the consumer suffered loss as a result of non-compliant pension transfer advice;

19. (19)

    ‘retirement date’ is the consumer’s presumed or alternative retirement date determined in accordance with DISP App 4.3.15R to 4.3.18R;

20. (20)

    ‘secondary compensation sum’ is the redress sum comprising the components in DISP App 4.3.29R(2);

21. (21)

    ‘SERPS’ is the state earnings related pension scheme;

22. (22)

    ‘settlement date’ is the date on which the firm’s redress offer is accepted by the consumer;

23. (23)

    ‘unauthorised payment’ is defined in section 160 of the Finance Act 2004;

24. (24)

    ‘unauthorised payment charges’ include any tax charges levied pursuant to chapter 5, part 4 of the Finance Act 2004; and

25. (25)

    ‘valuation date’ is the date at which the benefits in the defined benefit occupational pension scheme and benefits in the DC pension arrangement must be valued for the calculation at Step 3 at DISP App 4.3.19R.

1This appendix applies to any redress calculation and redress offer relating to non-compliant pension transfer advice arising as a result of:

1. (1)

   a complaint received by a firm on or after the commencement date;

2. (2)

   a complaint received before the commencement date where the firm has not issued a redress offer to the consumer on or before that date;

3. (3)

   the FCA’s approach to supervising firms (SUP 1A.3);

4. (4)

   any other redress exercise carried out by a firm; and

5. (5)

   a requirement in CONRED 4 (British Steel Consumer Redress Scheme).

1This appendix also applies to redress calculations and redress offers where a firm upholds a complaint received after 3 August 2016 about a pension transfer between 29 April 1988 and 30 June 1994 in circumstances where either:

1. (1)

   the firm did not review the relevant pension transaction in accordance with the regulatory standards or requirements applicable for the review of the transaction at the time; or

2. (2)

   the particular circumstances of the case were not addressed by those standards.

1A firm must use an actuary or an approach approved by an actuary when undertaking calculations in accordance with this appendix to calculate:

1. (1)

   the valuation of the benefits in a defined benefit occupational pension scheme given up by a consumer; and

2. (2)

   the value of the consumer’s DC pension arrangement, where adjustments are necessary to obtain the current value.

1. (1)

   1Notwithstanding this appendix, a firm may offer to arrange for the consumer to be reinstated into a defined benefit occupational pension scheme, where it is possible to do so, or offer to set up a pension arrangement with safeguarded benefits for the consumer in place of paying redress if it is agreed to by the consumer.

2. (2)

   A firm may only offer to set up a pension arrangement with safeguarded benefits (such as a deferred annuity or pension annuity) in place of the payment of redress after the firm has calculated and informed the consumer of the redress offer which would otherwise be payable in accordance with this appendix.

3. (3)

   Any pension arrangement with safeguarded benefits set up by the firm should provide benefits to the consumer which are no less than the value of the benefits the consumer would have received from their defined benefit occupational pension scheme.

4. (4)

   If a firm offers to set up a pension arrangement with safeguarded benefits in place of paying redress, the firm must:

   1. (a)

      make a personal recommendation to the consumer about the suitability of the pension arrangement with safeguarded benefits which complies with the rules on assessing suitability in COBS 9;

   2. (b)

      clearly inform the consumer that they are not required to accept a pension arrangement with safeguarded benefits and can instead receive redress as a cash lump sum payment or by augmentation in accordance with DISP App 4.3.33R; and

   3. (c)

      not require the payment of any fees or charges by the consumer in connection with either the setting up of a pension arrangement with safeguarded benefits or the personal recommendation made by the firm.

1A firm must take the 5 steps set out in this section to carry out a redress calculation.

1The first step is for the firm to obtain the necessary information about the consumer’s:

1. (1)

   DC pension arrangement;

2. (2)

   defined benefit occupational pension scheme or, if there is more than one defined benefit occupational pension scheme, the one which the consumer would most likely have had rights in if they had received compliant pension transfer advice determined in accordance with DISP App 4 Annex 1 16.1G to 16.5G;

3. (3)

   personal and financial situation; and

4. (4)

   preference for redress to be paid either as a cash lump sum, or by full or partial augmentation where it is possible to do so without the consumer incurring a tax charge or liability,

to enable it to complete the redress calculation and make a redress offer.

1A firm is entitled to rely on information previously provided by the consumer unless it is aware or ought to be aware that the information is out of date, inaccurate or incomplete.

1To obtain the necessary information required to calculate or offer redress, a firm must:

1. (1)

   identify whether there is any relevant information held on its client file or in publicly available records; and

2. (2)

   if the information in (1) is not sufficient or could have changed:

   1. (a)

      request information from the consumer; and

   2. (b)

      with the consumer’s permission, contact the provider of the consumer’s DC pension arrangement and defined benefit occupational pension scheme and, where relevant, HMRC or DWP to obtain the information.

1When offering to calculate how much redress could be paid by full or partial augmentation, the firm must explain to the consumer that:

1. (1)

   the redress offer will be calculated on the basis that the redress will be invested prudently by the consumer; and

2. (2)

   augmenting a defined contribution pension scheme is one way in which the redress can be invested prudently.

1Requests for information in DISP App 4.3.6R must be in a durable medium.

1The firm must only make requests for information that are necessary for the redress calculation that the firm is carrying out and, in relation to requests made to the consumer, information which the consumer can reasonably be expected to provide.

1. (1)

   1A firm must give a consumer a clear description of the information needed and explain why the information is needed to calculate redress and the consequence if the consumer does not provide the information.

2. (2)

   A firm must give a consumer at least 14 days from receipt of the request to respond to any request for information.

3. (3)

   If the consumer does not respond to the first request for information, or responds with insufficient information, the firm must make a second request for information and give the consumer at least 14 days to respond.

4. (4)

   If the consumer does not respond to the second request for information, or responds with insufficient information, the firm must contact the consumer again, indicating that the firm may have to discontinue the redress calculation if no reply is received.

5. (5)

   A firm may make one or more subsequent requests for information if the consumer’s personal circumstances support the making of such further requests.

6. (6)

   A firm may make reasonable additional requests for information if the consumer requests that the firm calculate the redress offer by augmentation.

1If, after following the procedures in DISP App 4.3.6R to 4.3.10R, a firm does not have the necessary information about the consumer’s DC pension arrangement, defined benefit occupational pension scheme and/or personal and financial situation to enable it to properly assess whether the consumer has suffered loss, the firm must:

1. (1)

   in the first instance, attempt to calculate redress on the basis of the information it holds; and

2. (2)

   if it is not possible to calculate redress without further information, consider whether it is appropriate to discontinue the redress calculation.

1. (1)

   1The second step is for the firm to determine whether the consumer would have already taken retirement benefits from their defined benefit occupational pension scheme if, at or prior to the valuation date, they had remained a member of that scheme.

2. (2)

   To determine whether the consumer would have taken retirement benefits from their defined benefit occupational pension scheme at or prior to the valuation date, firms must apply the rebuttable presumption at DISP App 4.3.16R.

1A firm must presume that a consumer would have taken pension benefits from their defined benefit occupational pension scheme at their normal retirement age in their defined benefit occupational pension scheme or on death if their death preceded their normal retirement age.

1The third step is for the firm to calculate whether (X) is greater than (Y) on the valuation date using the formula at DISP App 4.4.2R, where:

1. (1)

   (X) is the estimated value of the benefits in the defined benefit occupational pension scheme together with the difference in SERPS had the consumer remained a member; and

2. (2)

   (Y) is the value of the benefits from the consumer’s DC pension arrangement.

1Where (X) is greater than (Y), the consumer has suffered a loss and the amount calculated is the primary compensation sum to be used when producing a redress offer at DISP App 4.3.29R.

1The valuation date must be the first day of the quarter (for calculations undertaken within that quarter).

1The redress calculation date must fall within the same quarter as the valuation date but does not have to be the same date as the valuation date.

1. (1)

   1Redress calculations must be based on the new assumptions available on the first day of each new quarter, using publicly available data from the final business day of the quarter immediately before.

2. (2)

   If a firm carries out a further redress calculation after expiration of the validity period in DISP App 4.3.24R and 4.3.25R, including following a settlement or award made by Financial Ombudsman Service, that calculation must be based on the new assumptions for the quarter in which it is carried out.

1Redress calculations must remain valid for 3 months from the date the redress offer is sent to the consumer, irrespective of quarterly changes to the assumptions.

1A firm must extend the validity of the redress calculation for a reasonable period of time if there are circumstances outside of the consumer’s control which impact on the consumer’s ability to accept or reject a redress offer.

1A firm must offer a consumer redress that, as far as possible, puts the consumer into the position they would have been in if they had received compliant pension transfer advice.

1Redress offers must be issued to the consumer promptly following the calculation date and within 3 months of the valuation date.

1The redress must consist of the sum total of:

1. (1)

   the primary compensation sum calculated in accordance with DISP App 4.3.19R and 4.3.20R, adjusted to take account of the consumer’s tax position and any entitlement to means-tested state benefits; and

2. (2)

   a secondary compensation sum comprising any consequential losses, including any initial adviser charges on the DC pension arrangement and the primary compensation sum at (1) in accordance with DISP App 4.3.32G, calculated using the formula at DISP App 4.4.19R; and

3. (3)

   an additional compensation sum to compensate the consumer for the lapse of time between the valuation date and the payment date calculated in accordance with DISP App 4 Annex 1 14.1G to 14.3G.

1A firm must adjust the redress offer to take account of:

1. (1)

   the consumer’s individual tax position, including (if the consumer directs that all or part of the redress be paid by full or partial augmentation) allowances on pension contributions eligible for tax relief; and

2. (2)

   the consumer’s entitlement to means-tested state benefits.

1Consequential losses must include the cost of initial adviser charges using the assumptions in DISP App 4 Annex 1 9.1G if the consumer’s assumed retirement date is after the valuation date, and:

1. (1)

   the consumer is not in an ongoing advice arrangement with any firm; or

2. (2)

   the consumer is in an ongoing advice arrangement with the firm that gave the non-compliant pension transfer advice, where;

   1. (a)

      the firm is charging the consumer more than the default ongoing adviser charges in DISP App 4 Annex 1 9.1G(2); and

   2. (b)

      the firm will not provide an undertaking to reduce its ongoing adviser charge to the level of the default ongoing adviser charge (or lower) for the period to the consumer’s assumed retirement date.

1. (1)

   1A firm must always calculate and offer to pay the total amount of redress in DISP App 4.3.29R (with adjustments in DISP App 4.3.30R) as a cash lump sum payment.

2. (2)

   Where a firm has the necessary information, the firm may also calculate the redress offer to be paid by augmentation without receiving a request to do so from the consumer.

3. (3)

   If the firm calculates the redress that would be paid by augmentation, it must offer the consumer the option of the redress being paid by augmentation or by a lump sum cash payment.

4. (4)

   If, during the period in which a redress calculation remains valid in accordance with DISP App 4.3.24R to 4.3.26G, a firm is requested to calculate the redress payable by augmentation, it must carry out that calculation promptly.

5. (5)

   A firm must not charge the consumer for calculating how much of the redress could be paid by augmentation.

1The fifth step is for the firm to communicate the outcome of the redress calculation and any redress offer to the consumer.

1The communication in DISP App 4.3.36R must be in a durable medium.

1The communication in DISP App 4.3.36R must include the following information:

1. (1)

   An explanation of the redress calculation, including:

   1. (a)

      confirmation that the redress has been calculated in accordance with the FCA’s rules and guidance using an approach which has been approved by an actuary; and

   2. (b)

      an explanation that the redress calculation takes account of the market conditions at the valuation date and this could mean that the redress might be different if it was calculated on a different date; and

   3. (c)

      the information and assumptions used in the redress calculation, including:

      1. (i)

         the retirement date used in the calculation; and

      2. (ii)

         whether the firm has determined that the consumer would have retired in their defined benefit occupational pension scheme at or prior to the valuation date and if so:

         1. (A)

            the basis for this determination;

         2. (B)

            the impact of the determination on the valuation of the consumer’s defined benefit occupational pension scheme (including the percentage reduction applied for early retirement) and, where the actual reduction for the consumer’s defined benefit occupational pension scheme has not been used in the calculation, an explanation of the approach used and its impact on the redress offer; and

         3. (C)

            any assumptions made about the allowance for the pension commencement lump sum including, where the actual commutation factors for the consumer’s defined benefit occupational pension scheme have not been used in the calculation, an explanation of the approach used and its impact on the redress offer; and

      3. (iii)

         if late retirement factors for the consumer’s defined benefit occupational pension scheme have not been used in the calculation, an explanation of the approach used in the calculation by the firm and its implications for the redress offer;

      4. (iv)

         the value the firm has placed on any illiquid or unquoted assets and the reasons for that valuation;

      5. (v)

         the level of future investment returns assumed by the calculation, including an invitation for the consumer to review their current investment strategy to ensure it is in line with this assumption; and

      6. (vi)

         the level of any charges, including product, platform and adviser charges, that the consumer is currently paying compared to the level assumed in the redress calculation, including any allowance made for initial advice from a new adviser; and

      7. (vii)

         any assumption made about the consumer’s marital or civil partnership status;

      8. (viii)

         if there is more than one defined benefit occupational pension scheme which the consumer could have had rights in, the information required by 1 16.1G to 16.5G;

      9. (ix)

         whether the consumer’s defined benefit occupational pension scheme has entered or is in the Pension Protection Fund assessment period and, if so, any future increases to the value of the consumer’s benefits which are certain and quantified, and which are known, or reasonably ought to be known, by the firm at the calculation date; and

      10. (x)

          where RPI, CPI or earnings inflation rates are used in the redress calculation, an explanation of the published rate underlying the rate used and its source (for example, the Bank of England website) where it can be checked by the consumer, without any adjustment for annualisation.

2. (2)

   An explanation of the redress offer, including:

   1. (a)

      if there is no loss on the valuation date, a clear explanation of why this is the case; and

   2. (b)

      if the result is a loss on the valuation date:

      1. (i)

         the total amount of redress calculated, with the primary compensation sum and the secondary compensation sum shown separately;

      2. (ii)

         confirmation that if the redress offer is accepted by the consumer, the redress paid by the firm will be increased to include the additional compensation sum;

      3. (iii)

         an offer to make payment of redress as a cash lump sum;

      4. (iv)

         the warning in the form at DISP App 4.3.39R;

      5. (v)

         if it has not already been requested by the consumer, an offer to calculate free of charge the redress that would be payable by full or partial augmentation; and

      6. (vi)

         an explanation of how the consumer’s tax position and entitlement to state benefits has been taken into account, including an allowance for any tax charges for which the consumer will be liable (and where the consumer is responsible for any payment of tax, this should be made clear and a recommendation that they contact HMRC provided).

3. (3)

   The terms and conditions of any redress offer, including the following information:

   1. (a)

      a statement requesting that the consumer review the assumptions used in the redress calculation and explaining that they may raise any questions about them with the firm;

   2. (b)

      that the redress offer is valid for a 3-month period from the date it is issued to them, during which period the consumer can consider their options and the offer will remain open for acceptance;

   3. (c)

      how to request that the firm calculate the redress that would be paid if the consumer directs for the redress to be paid by full or partial augmentation;

   4. (d)

      how to accept or reject the redress offer; and

   5. (e)

      the process for resolving any complaints about the redress calculation or redress offer.

1Where any of the redress is paid in the form of a cash lump sum to the consumer, a firm must provide:

1. (1)

   a warning that this amount, in addition to the pension value in the consumer’s DC pension arrangement, is intended to provide the consumer with the equivalent retirement income they would have received if they had not transferred out of their defined benefit occupational pension scheme, but only as long as the consumer invests it prudently; and

2. (2)

   a warning that if the consumer does not invest the redress prudently, they risk losing out on the retirement income their redress amount is meant to provide; and

3. (3)

   information about trusted sources of free advice and guidance on making investment decisions and avoiding investment scams, such as Pension Wise, MoneyHelper and the FCA’s ‘Scam Smart’ guidance; and

4. (4)

   an explanation of the risk and consequences of making an unauthorised payment, including the risk of unauthorised payment charges being levied.

1When a firm communicates a redress offer to a consumer, it should:

1. (1)

   take reasonable steps to communicate in a way that is fair, clear and not misleading;

2. (2)

   take into account the information needs of the consumer, including their understanding of financial services; and

3. (3)

   where possible, use plain language and avoid the use of jargon, unfamiliar or technical language.

1To complete the redress calculation at Step 3 (DISP App 4.3.19R), a firm must undertake the following computation at the valuation date:

(A) + (B) + (C) – (D) - (E) - (F) - (G) + (H)

where:

1. (1)

   A is the capitalised value of pension benefits which would not yet have been taken from the defined benefit occupational scheme;

2. (2)

   B is the capitalised value of future death benefits before the consumer’s retirement date, to the extent not already included in A, which would have been payable from the defined benefit occupational pension scheme;

3. (3)

   C is the accumulated value of past payments which would have been paid to the consumer from the defined benefit occupational pension scheme between the consumer’s retirement date and the valuation date;

4. (4)

   D is the current value of the DC pension arrangement;

5. (5)

   E is the accumulated value of past benefits paid to the consumer or beneficiary from the consumer’s DC pension arrangement from the retirement date to the valuation date;

6. (6)

   F is the capitalised value of previously secured annuity benefits which will be paid from the consumer’s DC pension arrangement to the valuation date;

7. (7)

   G is the value of any increase in SERPS as a result of the transfer; and

8. (8)

   H is the value of any reduction in SERPS as a result of the transfer

1To calculate the value of A in DISP App 4.4.2R(1):

1. (1)

   where:

   1. (a)

      the consumer’s retirement date would have been prior to the valuation date; or

   2. (b)

      a beneficiary would have received benefits prior to the valuation date because the consumer is deceased,

   use the sum of [K x L x M - (N/O)] x P x Q] across all pension tranches; or

2. (2)

   where the retirement date is after the valuation date, use the sum of [K x LA x MA x QA x R x S] across all pension tranches.

1For the purpose of DISP App 4.4.5R(1) or (2):

1. (1)

   K is the annual value of the pension at the date on which the consumer left active membership, split by each pension tranche;

2. (2)

   L and LA are the cumulative revaluation factors for each pension tranche from the date of leaving active membership to the retirement date (including the date of the consumer’s death), where:

   1. (a)

      L is based on known revaluation;

   2. (b)

      LA is based on known and assumed revaluation, where the assumed revaluation is based on the relevant assumptions in DISP App 4 Annex 1 3.1G to 5.1G;

3. (3)

   M and MA are the early or late retirement factor applicable to each pension tranche at the retirement date, determined in accordance with DISP App 4 Annex 1 11.1G and 11.2G;

4. (4)

   N is the assumed pension commencement lump sum which would have been taken from each pension tranche, determined in accordance with the technical guidance at DISP App 4.5.4G;

5. (5)

   O is the pension commencement lump sum commutation factor applicable to each pension tranche, determined in accordance with DISP App 4 Annex 1 11.3G;

6. (6)

   P is the cumulative known pension increases, including discretionary increases, that would have been applied to each pension tranche from the retirement date or the date beneficiary payments commenced, to the valuation date, in accordance with the scheme rules;

7. (7)

   Q is the relevant annuity factor to apply to each pension tranche at the valuation date, taking into account the guidance on relevant annuity factors in DISP App 4.5.1G and made up of the assumptions at DISP App 4 Annex 1, including those relating to:

   1. (a)

      the initial post-retirement discount rate (which allows for the annuity pricing margin) at DISP App 4 Annex 1 7.1, based on the discounted mean term at the valuation date;

   2. (b)

      post-retirement pension increases, as amended by the Black Scholes model at DISP App 4 Annex 1 6.1, where relevant;

   3. (c)

      mortality at DISP App 4 Annex 1 10.1G;

8. (8)

   QA is the relevant annuity factor to apply to each pension tranche at the retirement date, taking into account the guidance on relevant annuity factors in DISP App 4.5.1G and made up of the assumptions in DISP App 4 Annex 1, including those relating to:

   1. (a)

      the final post-retirement discount rate (which allows for the annuity pricing margin and the adjustment for the pension commencement lump sum), based on the discounted mean term at the retirement date;

   2. (b)

      post-retirement pension increases, as amended by the Black Scholes model, where relevant; and

   3. (c)

      mortality assumptions;

9. (9)

   R is the discount factor for the period from the valuation date to the retirement date, based on the pre-retirement discount rate, netted down by product and adviser charges, following the technical guidance at DISP App 4.5.3G and using the relevant assumptions in DISP App 4 Annex 1; and

10. (10)

    S is the probability of survival for the period from the valuation date to the retirement date, using the relevant assumptions in DISP App 4 Annex 1 10.1G.

1To determine the value of B in DISP App 4.4.2R(2), a firm must:

1. (1)

   identify the lump sum and regular pension payments that would be payable on the death of the consumer between the valuation date and the retirement date, based on the defined benefit occupational scheme rules; and

2. (2)

   calculate the present value of the potential payments:

   1. (a)

      using the pre-retirement discount rate, netted down for charges, from DISP App 4 Annex 1 8.1G;

   2. (b)

      allowing for the probability of each payment being made, using the mortality assumptions in DISP App 4 Annex 1 10.1G; and

   3. (c)

      allowing for any pension increases in payment that would be applied to regular payments, using the assumptions in DISP App 4 Annex 1 6.1G.

1To determine the value of C in DISP App 4.4.2R(3), a firm must, for each pension tranche:

1. (1)

   assume the value is zero if the retirement date is after the valuation date;

2. (2)

   if the retirement date is before the valuation date, use the factors K, L, M, N, O and P from DISP App 4.4.6R to determine the level of the pension commencement lump sum and each scheme pension payment which would have been made to the consumer or their beneficiaries;

3. (3)

   adjust each payment to reflect the tax which would have been paid, reflecting the guidance on taxation of past payments at DISP App 4.5.18G;

4. (4)

   apply an accumulation rate to each payment, at the rate specified in DISP App 4 Annex 1 12.1G between the date of payment and the valuation date, allowing for changes in the rate over time; and

5. (5)

   calculate the sum of all the accumulated payments which would have been made.

1To determine the value of D in DISP App 4.4.2R(4), a firm must:

1. (1)

   use the value of all investments and holdings within the consumer’s DC pension arrangement at the valuation date, in accordance with the technical guidance at DISP App 4.5.5G;

2. (2)

   where any payments were made from the DC pension arrangement prior to the retirement date:

   1. (a)

      identify all payments made before the retirement date;

   2. (b)

      apply an accumulation rate to each payment, at the rate specified in DISP App 4 Annex 1 12G between the date of payment and the valuation date, allowing for changes in the rate over time; and

   3. (c)

      add the total of all the accumulated payments in (2)(b) to the value in (1);

3. (3)

   deduct the accumulated value of any contributions and transfers to the DC pension arrangement, allowing for investment returns, not resulting from the pension transfer advice; and

4. (4)

   add on the present-day value of any cash enhancements paid to the consumer in connection with the transfer, in accordance with the technical guidance at DISP App 4.5.5G and using the assumption at DISP App 4 Annex 1 13.1G.

1To determine the value of E in DISP App 4.4.2R(5), a firm must:

1. (1)

   identify all payments from the assumed retirement date to the valuation date, net of tax actually incurred, including:

   1. (a)

      pension commencement lump sums;

   2. (b)

      uncrystallised funds pension lump sums;

   3. (c)

      income withdrawals; and

   4. (d)

      annuity payments;

2. (2)

   apply an accumulation rate to each payment, at the rate specified in DISP App 4 Annex 1 12.1G between the date of payment and the valuation date, allowing for changes in the rate over time; and

3. (3)

   calculate the sum of all the accumulated payments which would have been made.

1To determine the value of F in DISP App 4.4.2R(6), a firm must calculate the value of:

(T) x (U)

where:

1. (1)

   T is the annual value of the annuity income at the valuation date;

2. (2)

   U is the relevant annuity factor to apply to the current level of the secured annuity income at the valuation date, following the guidance at DISP App 4.5.1G and made up of the assumptions in DISP App 4 Annex 1, including those relating to:

   1. (a)

      the initial post-retirement discount rate (which allows for the annuity pricing margin) based on the discounted mean term at the valuation date;

   2. (b)

      pension increases that apply to the secure annuity income, as amended by the Black Scholes model, where relevant; and

   3. (c)

      mortality assumptions.

1To determine the value of any initial adviser charges, firms must:

1. (1)

   calculate the value of all the elements of the computation in DISP App 4.4.2R;

2. (2)

   add the value in (1) to the current value of the consumer’s DC pension arrangement;

3. (3)

   multiply the result by the relevant assumed percentage initial adviser charges in DISP App 4 Annex 1 9.1G;

4. (4)

   where the resulting initial adviser charges:

   1. (a)

      exceed the maximum level for the initial adviser charges in DISP App 4 Annex 1 9.1G, set the initial adviser charges to the maximum level; or

   2. (b)

      fall below the minimum level for the initial adviser charges in DISP App 4 Annex 1 9.1G, set the initial adviser charges to the minimum level.