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 (including, where applicable, any retained interest charges under (4), below)4 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) of the charges,4 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.

Exceptions4

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 charge3 [£500 x y/100] that year. If your fund is valued at £7500 throughout the year, we will charge3 [£7500 x y/100] that year.”2

41.3

An effect of charges table and reduction in yield information are not required for a personal pension scheme, stakeholder pension scheme or drawdown pension where the client elects to withdraw their funds in full, reducing the value of their rights to zero.

41.3A

Where 1.3 applies, if a client subsequently does not withdraw the funds in full from their personal pension scheme, stakeholder pension scheme or drawdown pension reducing their rights to zero, the firm must provide the client with an ‘effect of charges’ table and ‘reduction in yield’ information.

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.

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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); and3

(3)

[deleted]3

(4)

the rate of return (after price inflation, where appropriate)used to calculate the figures in the table.

2.2

An3 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

The payments into your plan3

Withdrawals

Before3 charges are taken3

If only plan3 and investment charges are taken

After all charges are taken from this plan3

£

£

£

£

£

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 or uncrystallised funds pension lump sum payments4, figures must be included for each of the first ten years, or less if the value of the fund is projected at the intermediate rate of return4 to reach zero before then.

Note 2

This column 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,3 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.

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Exception

2.3

An effect of charges table and its title can be amended, to the extent that it is necessary:3

3(1)

to properly reflect the nature and effect of, for example, the adviser charges, consultancy charges or the charges inherent in a particular product; or

3(2)

to ensure that the column labels and any explanatory text reflect the nature of the product and to make it clear whether price inflation has been taken into account; or

3(3)

to ensure consistency with the terminology used in relation to a particular product.

G

2.4

[deleted]3

2.5

An effect of charges table must be appropriately titled, for example, ‘How the charges reduce the value of your pension fund’.

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3

Reduction in yield

3.1

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

(1)

‘B’ is the intermediate rate of return (net of price inflation, where appropriate)3 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 (net of price inflation, where appropriate)3 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 statements which explain3 that:

3(a)

'product charges reduce investment growth after price inflation from 'B%' to 'C%'', or in some other appropriate way; and

3(b)

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

(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 the investment growth (after price inflation, where appropriate)3 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.