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

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;

(3)

‘reduction in yield’ information; and2

2(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.

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.”2

21.2A

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.

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.