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:

1. (1)

   a pension transfer from a scheme with safeguarded benefits;

2. (2)

   a pension conversion; or

1. (3)

   a pension opt-out from a scheme with safeguarded benefits or potential safeguarded benefits.

7In this section and in COBS 19 Annex 4A, 4B and 4C:

1. (a)

   “appropriate pension transfer analysis” refers to the analysis prepared in accordance with COBS 19.1.2BR;

2. (b)

   “ceding arrangement” refers to the retail client’s existing pension arrangement with safeguarded benefits;

3. (c)

   “future income benefits” refers to the full value of the pension income that would have been paid by the ceding arrangement (that is, before any commutation for a lump sum);

4. (d)

   “proposed arrangement” refers to the arrangement with flexible benefits to which the retail client would move and takes into account the subsequent intended pattern of decumulation;

5. (e)

   “transfer value comparator” refers to a comparison prepared in accordance with COBS 19.1.3AR.

1. (1)

   7A firm must ensure that advice on pension transfers, pension conversions and pension opt-outs is given or checked by a pension transfer specialist.

2. (2)

   The requirement in (1) does not apply where the only safeguarded benefit involved is a guaranteed annuity rate.

1. (1)

   7A firm must make a personal recommendation when it provides advice on conversion or transfer of pension benefits.

2. (2)

   Before making the personal recommendation the firm must:

   1. (a)

      determine the proposed arrangement with flexible benefits to which the retail client would move; and

   2. (b)

      carry out the appropriate pension transfer analysis and produce the transfer value comparator7.

3. (3)

   The requirement in (2)(b) does not apply if the only safeguarded benefit involved is a guaranteed annuity rate7.

4. (4)

   The firm must take reasonable steps to ensure that the retail client understands how the key outcomes from the appropriate pension transfer analysis and the transfer value comparator contribute towards the personal recommendation.7

7To prepare an appropriate transfer analysis a firm must:

1. (1)

   assess the benefits likely to be paid and options available under the ceding arrangement;

2. (2)

   compare (1) with those benefits and options available under the proposed arrangement; and

3. (3)

   undertake the analysis in (1) and (2) in accordance with COBS 19 Annex 4A and COBS 19 Annex 4C.

7 COBS 19.1.1-AR and COBS 19.1.2BR do not preclude a firm from preparing other forms of the analysis (for example, stochastic cashflow modelling) which are relevant to making a personal recommendation to the retail client, as long as projected outcomes at the 50th percentile are no less conservative than if the analysis had been prepared in accordance with COBS 19 Annex 4A and COBS 19 Annex 4C.

1. (1)

   7To prepare a transfer value comparator, a firm must compare the transfer value offered by the ceding arrangement with the estimated value needed today to purchase the future income benefits available under the ceding arrangement using a pension annuity (calculated in accordance with COBS 19 Annex 4B and COBS 19 Annex 4C).

2. (2)

   The firm must provide the transfer value comparator to the retail client in a durable medium using the format and wording in COBS 19 Annex 5 and:

   1. (a)

      where the retail client has 12 months or more before reaching normal retirement age, use the notes set out at COBS 19 Annex 5 1.2R; or

   2. (b)

      where the retail client has less than 12 months before reaching normal retirement age, use the notes set out at COBS 19 Annex 5 1.3R.

7If a firm arranges a pension transfer or pension opt-out for a retail client without making a personal recommendation it must:

1. (1)

   make a clear record of the fact that no personal recommendation was given to that client; and

2. (2)

   retain this record indefinitely.

When a firm prepares a suitability report it must:

1. (1)

   (in the case of a personal pension scheme), explain why it considers the personal pension scheme to be at least as suitable as a stakeholder pension scheme; and

2. (2)

   (in the case of a personal pension scheme, stakeholder pension scheme or2FSAVC) explain why it considers the personal pension scheme, stakeholder pension scheme or2FSAVC to be at least as suitable as any facility to make additional contributions to an occupational pension scheme, group personal pension scheme or group stakeholder pension scheme23 which is available to the retail client.

   232

When a firm promotes a personal pension scheme, including a group personal pension scheme, to a group of employees it must:

1. (1)

   be satisfied on reasonable grounds that the scheme is likely to be at least as suitable for the majority of the employees as a stakeholder pension scheme; and

2. (2)

   record why it thinks the promotion is justified.

1. (1)

   When a firm sells, personally recommends or arranges1 the payment of an AVC contribution by a member of an occupational pension scheme to be secured by a packaged product purchased by the scheme trustees, it must give the trustees sufficient information to pass to the relevant member for that member to be able to make informed comparisons between the AVC and any alternative personal pension schemes and stakeholder pension schemes available.1

2. (2)

   This rule applies to an AVC where members' benefits are linked to the earmarked segments of a life policy or scheme, but it does not apply to an AVC where the trustees make pooled investments and have their own arrangements for allocating investment returns to determine members' AVC benefits.

4In this section:

1. (1)

   'fact sheet' means the Money Advice Service fact sheet "Your pension: it's time to choose" available on www.moneyadviceservice.org.uk or a statement provided by a firm that gives materially the same information;

2. (2)

   'intended retirement date' means:

   1. (a)

      the date (according to the most recent recorded information available to the provider) when the scheme member intends to retire, or to bring the benefits in the scheme into payment, whichever is the earlier; or

   2. (b)

      if there is no such date, the scheme member's state pension age;

3. (3)

   'open market options' means the options available to a scheme member to access their pension savings on the open market;

4. (4)

   'open market options statement' means the information specified in COBS 19.4.6R, provided in a durable medium, to assist the retail client to make an informed decision about their open market options;

5. (5)

   'pension decumulation product' is a product used to access pension savings and includes:

   1. (a)

      a facility to enable a retail client to make an uncrystallised funds pension lump sum payment;

   2. (b)

      an option to take a small lump sum payment;

   3. (c)

      a drawdown pension; and

   4. (d)

      a pension annuity;

6. (6)

   'pension savings' is the proceeds of the retail client'spersonal pension scheme, stakeholder pension scheme, FSAVC, retirement annuity contract or pension buy-out contract;

7. (7)

   'reminder' is the requirement in COBS 19.4.9R to remind the retail client about the open market options statement; and

8. (8)

   'signpost' is the requirement in COBS 19.4.16R to provide a written or oral statement encouraging a retail client to use pensions guidance or to take regulated advice to understand their options at retirement.

4This section applies to a firm which operates a retail client’spersonal pension scheme, stakeholder pension scheme, FSAVC, retirement annuity contract or pension buy-out contract.

1. (1)

   4A firm must give a retail client an open market options statement:

   1. (a)

      if the client asks a firm for a retirement quotation more than four months before the client’s intended retirement date;

   2. (b)

      if a firm does not receive such a request for a retirement quotation, between four and six months before the client’s intended retirement date; or

   3. (c)

      if a retail client with open market options tells a firm that he or she is considering, or has decided:

      1. (i)

         to discontinue an income withdrawal arrangement; or

      2. (ii)

         to take a further sum of money from his or her pension to exercise open market options;

      unless the firm has given the client such a statement in the last 12 months.

2. (2)

   If after taking reasonable steps to comply with the requirement in COBS 19.4.5R (1) (b) a firm has been unable to provide a retail client with an open market options statement the firm must provide the statement in good time before it sells a pension decumulation product to the client.

4An open market options statement must include:

1. (1)

   the Money Advice Service fact sheet "Your pension: it's time to choose" available on www.moneyadviceservice.org.uk or a statement provided by a firm that gives materially the same information;

2. (2)

   a summary of the retail client's open market options, which is sufficient for the client to be able to make an informed decision about whether to exercise, or to decline to exercise, open market options;

3. (3)

   information about the retail client'spersonal pension scheme, stakeholder pension scheme, FSAVC, retirement annuity contract or pension buy-out contract provided by the firm, including:

   1. (a)

      the sum of money that will be available to exercise open market options;

   2. (b)

      whether any guarantees apply and, if so, information about how the guarantees work;

   3. (c)

      any other relevant special features, restrictions, or conditions that apply, such as (for with-profits funds) any market value reduction conditions in place; and

   4. (d)

      any other information relevant to the exercise of the retail client's open market options; and

4. (4)

   a clear and prominent statement about the availability of the pensions guidance including:

   1. (a)

      how to access the pensions guidance and its contact details;

   2. (b)

      that pensions guidance can be accessed on the internet, telephone, or face to face;

   3. (c)

      that the pensions guidance is a free impartial service to help consumers to understand their options at retirement; and

   4. (d)

      a recommendation that the client seeks appropriate guidance or advice to understand their options at retirement.

4An open market options statement must not include an application form for a pension decumulation product.

4At least six weeks before the retail client’s intended retirement date the firm must:

1. (1)

   remind the client about the open market options statement;

2. (2)

   tell the client what sum of money will be available to exercise open market options;

3. (3)

   remind the client about the availability of the pensions guidance; and

4. (4)

   recommend that the client seeks appropriate guidance or advice to understand their options at retirement.

4The reminder must not include an application form for a pension decumulation product.

4A firm must not provide a key features illustration to a retail client for a pension decumulation product, excluding a small lump sum payment, unless:

1. (1)

   it is required to provide the client with the key features illustration in accordance with the rules on providing product information to clients (COBS 14.2.1R);

2. (2)

   without prompting by the firm, the client requests the key features illustration;

3. (3)

   it includes a key features illustration for each of the pension decumulation product options that it offers; or

4. (4)

   it includes multiple key features illustrations as indicative representations of each of the pension decumulation product options that it offers.

4When a firm communicates with a retail client about their pension annuity options the firm must provide the client with information about how their circumstances can affect retirement income calculations and payments for pension annuities offered by the firm and on the open market.

4When a firm communicates with a retail client about their drawdown pension and uncrystallised funds pension lump sum options, the firm must provide the client with such information as is necessary for the client to make an informed decision including, where relevant, information about:

1. (1)

   how the remaining fund is invested;

2. (2)

   sustainability of income over time including;

   1. (a)

      the extent to which any income is guaranteed; and

   2. (b)

      implications of full encashment on the client’s retirement income;

3. (3)

   the need to review, make further decisions about, or take further actions during the life of the pension decumulation product;

4. (4)

   impact on means-tested benefits;

5. (5)

   the effect of costs and charges on the client’s income; and

6. (6)

   tax implications.

1. (1)

   4When a firm communicates with a retail client about the retail client'spersonal pension scheme, stakeholder pension scheme, FSAVC, retirement annuity contract or pension buy-out contract which is provided by the firm, unless the circumstances in (2) apply, the firm must:

   1. (a)

      refer to the availability of the pensions guidance;

   2. (b)

      offer to provide the client with information about how to access the pensions guidance; and

   3. (c)

      include a recommendation that the client seeks appropriate guidance or advice to understand their options at retirement.

2. (2)

   A firm is not required to provide the client with the statement required in (1) where:

   1. (a)

      the firm communicates with the client for a purpose other than:

      1. (i)

         encouraging the client to think about their open market options; or

      2. (ii)

         facilitating access to the client's pension savings; or

   2. (b)

      the client has already accessed the pensions guidance; or

   3. (c)

      the client has already received advice from a firm on their open market options, for example from an independent financial adviser; or

   4. (d)

      the firm is providing the client with an open market options statement or six-week reminder in accordance with COBS 19.4.5R or COBS 19.4.9R.

4If a firm receives an application from a retail client to access some or all of their pension savings, the firm must provide the client with a description of the tax implications before the client accesses their pension savings.

4A firm is not required to provide the information in COBS 19.4.18R where it is provided in accordance with COBS 14.2.1R.

This section applies to a firm which operates a relevant scheme in which there are at least two relevant policyholders.

1. (1)

   Subject to COBS 19.5.3 R, a firm must establish an IGC.

2. (2)

   This rule does not apply to a firm ('Firm A') if another firm in Firm A's group has made arrangements under this section for an IGC to cover relevant schemes operated by Firm A.

1. (1)

   If a firm considers it appropriate, having regard to the size, nature and complexity of the relevant schemes it operates, it may establish a governance advisory arrangement instead of an IGC.

2. (2)

   If a firm has decided to establish a governance advisory arrangement rather than an IGC, this section (other than COBS 19.5.9R (2), COBS 19.5.9R (3), COBS 19.5.10 G, COBS 19.5.11 R and COBS 19.5.12 G) apply to the firm by reading references to the IGC as references to the governance advisory arrangement.

3. (3)

   A firm must establish a governance advisory arrangement on terms that secure the independence of the governance advisory arrangement and its Chair from the firm.

A firm must include, as a minimum, the following requirements in its terms of reference for an IGC:

1. (1)

   the IGC will act solely in the interests of relevant policyholders;

2. (2)

   the IGC will assess the ongoing value for money for relevant policyholders delivered by relevant schemes particularly, though not exclusively, through assessing:

   1. (a)

      whether default investment strategies within those schemes:

      1. (i)

         are designed and executed in the interests of relevant policyholders;

      2. (ii)

         have clear statements of aims and objectives;

   2. (b)

      whether the characteristics and net performance of investment strategies are regularly reviewed by the firm to ensure alignment with the interests of relevant policyholders and that the firm takes action to make any necessary changes;

   3. (c)

      whether core scheme financial transactions are processed promptly and accurately;

   4. (d)

      the levels of charges borne by relevant policyholders; and

   5. (e)

      the direct and indirect costs incurred as a result of managing and investing, and activities in connection with the managing and investing of, the pension savings of relevant policyholders, including transaction costs;

3. (3)

   the IGC will raise with the firm'sgoverning body any concerns it may have in relation to the value for money for relevant policyholders delivered by a relevant scheme;

4. (4)

   the IGC will escalate concerns as appropriate where the firm has not, in the IGC's opinion, addressed those concerns satisfactorily or at all;

5. (5)

   the IGC will meet, or otherwise make decisions to discharge its duties, using a quorum of at least three members, with the majority of the quorum being independent;

6. (6)

   the Chair of the IGC will be responsible for the production of an annual report setting out:

   1. (a)

      the IGC's opinion on the value for money delivered by relevant schemes, particularly against the matters listed under (2);

   2. (b)

      how the IGC has considered relevant policyholders' interests;

   3. (c)

      any concerns raised by the IGC with the firm'sgoverning body and the response received to those concerns;

   4. (d)

      how the IGC has sufficient expertise, experience and independence to act in relevant policyholders' interests;

   5. (e)

      how each independent member of the IGC, together with confirmation that the IGC considers these members to be independent, has taken into account COBS 19.5.12 G;

   6. (f)

      the arrangements put in place by the firm to ensure that the views of relevant policyholders are directly represented to the IGC.

A firm must:

1. (1)

   take reasonable steps to ensure that the IGC acts and continues to act in accordance with its terms of reference;

2. (2)

   take reasonable steps to provide the IGC with all information reasonably requested by the IGC for the purposes of carrying out its role;

3. (3)

   provide the IGC with sufficient resources as are reasonably necessary to allow it to carry out its role independently;

4. (4)

   have arrangements to ensure that the views of relevant policyholders can be directly represented to the IGC;

5. (5)

   take reasonable steps to address any concerns raised by the IGC under its terms of reference;

6. (6)

   provide written reasons to the IGC as to why it has decided to depart in any material way from any advice or recommendations made by the IGC to address any concerns it has raised;

7. (7)

   take all necessary steps to facilitate the escalation of concerns by the IGC under COBS 19.5.5R (4) and COBS 19.5.6G (5); and

8. (8)

   make the terms of reference and the annual report of the IGC publicly available.

1. (1)

   A firm must take reasonable steps to ensure that the IGC has sufficient collective expertise and experience to be able to make judgements on the value for money of relevant schemes.

2. (2)

   A firm must recruit independent IGC members through an open and transparent recruitment process.

3. (3)

   A firm must appoint members to the IGC so that:

   1. (a)

      the IGC consists of at least five members, including an independent Chair and a majority of independent members;

   2. (b)

      IGC members are bound by appropriate contracts which reflect the terms of reference in COBS 19.5.5 R, and on such terms as to secure the independence of independent members;

   3. (c)

      independent IGC members who are individuals are appointed for fixed terms of no longer than five years, with a cumulative maximum duration of ten years;

   4. (d)

      individuals acting as the representative of an independent corporate member are appointed to the IGC for a maximum duration of ten years;

   5. (e)

      independent IGC members who are individuals, including those representing independent corporate members, are not eligible for reappointment to the IGC until five years have elapsed, after having served on the firm'sIGC for the maximum duration of ten years;

   6. (f)

      appointments to the IGC are managed to maintain continuity in terms of expertise and experience of the IGC.

The firm, in appointing independent IGC members, must determine whether such a member is independent in character and judgement and whether there are relationships or circumstances which are likely to affect, or could appear to affect, that member’s judgement.

This section applies to an operator of a qualifying scheme.

The restrictions on administration charges in COBS 19.6.4 R do not apply in relation to a default arrangement under which, at any time before benefits come into payment, those benefits accruing to the member involve, or involve an option to have, a promise by or to be obtained from a third party about the rate or amount of those benefits.

A firm, for a default arrangement within a qualifying scheme, may only make, impose or otherwise facilitate payment of an administration charge1 by way of an accrued rights charge or a combination charge structure where:

1. (1)

   the limits in COBS 19.6.6 R are not exceeded; or

2. (2)

   the firm has obtained appropriate express agreement to exceed the limits and the following conditions are satisfied:

   1. (a)

      the express agreement contains an acknowledgement by the member that the administration charge1 for the service is likely to exceed the limits;

   2. (b)

      giving such express agreement is not a condition of becoming or remaining a member of the qualifying scheme;

   3. (c)

      express agreement has not been given for services which the operator must provide under the regulatory system or the general law, or which are core services.

The limits on administration charges are as follows:

1. (1)

   for a qualifying scheme which uses only an accrued rights charge, 0.75% of the value of those accrued rights;

2. (2)

   for a qualifying scheme which uses a combination charge scheme:

   1. (a)

      for the flat-fee charge element, £25 annually;

   2. (b)

      for the contribution percentage charge element, 2.5% of the contributions annually;

   3. (c)

      for the associated accrued rights charge, the limits as set out in column 2 of the table in COBS 19.6.7 R.

1. (1)

   A firm must not make any administration charge,1 or otherwise make or facilitate any payment or provide any non-monetary benefit, in respect of any service provided by a third party in connection with a qualifying scheme which would have the effect of decreasing the value of the accrued rights of any member of that scheme.2

   2
2. (2)

   The restriction in (1) does not apply where the firm has obtained express agreement from the relevant member to such a payment.

2A firm must not impose greater administration charges1 on a member of a qualifying scheme whose workplace pension contributions ceased on or after 6 April 2016 than those imposed on a member for whom such contributions are still being made.

1This section applies to an operator of a personal pension scheme or a stakeholder pension scheme.

This section does not apply to any charge which is excluded from the scope of section 137FBB of the Act by the Financial Services and Markets Act 2000 (Early Exit Pensions Charges) Regulations 2016 (SI 2016/1079).

1. (1)

   A firm must not:

   1. (a)

      impose; or

   2. (b)

      include in the arrangements relating to a personal pension scheme or stakeholder pension scheme any provision for the imposition of:

   an early exit charge on a member of the scheme.

2. (2)

   This rule applies in relation to a member who entered into a contract or other arrangement on or after 31 March 2017 providing for:

   1. (a)

      a right to benefits resulting from contributions to the scheme; or

   2. (b)

      an increment to benefits resulting from contributions to the scheme, but only in respect of the member’s benefits under that contract or other arrangement.

1. (1)

   A firm must not impose an early exit charge on a member of a personal pension scheme or stakeholder pension scheme that exceeds the lower of:

   1. (a)

      1% of the value of the member’s benefits being taken, converted or transferred; or

   2. (b)

      such lower amount as was provided for under the scheme arrangements as at 31 March 2017; or

   3. (c)

      where no such provision was made, no charge.

2. (2)

   A firm must not:

   1. (a)

      include provision in such a scheme for an early exit charge, where such provision did not exist on 31 March 2017; or

   2. (b)

      vary provision for an early exit charge in such a scheme to increase or potentially increase the charge.

3. (3)

   The value of the member’s benefits in (1)(a):

   1. (a)

      is calculated at the point when the firm receives confirmation from the member of the instruction to take the action giving rise to the early exit charge;

   2. (b)

      excludes an increment to member’s benefits resulting from contributions to a scheme under a contract or other arrangement entered into by the member on or after 31 March 2017;

   3. (c)

      excludes adjustments referred to, and satisfying the conditions in Regulation 3 of the Financial Services and Markets Act 2000 (Early Exit Pensions Charges) Regulations 2016 (SI 2016/1079); and

   4. (d)

      does not exclude adjustments referred to in Regulation 4 of the Financial Services and Markets Act 2000 (Early Exit Pensions Charges) Regulations 2016 (SI 2016/1079).

4. (4)

   This rule applies in relation to a member who entered into a contract or other arrangement (providing for a right to benefits resulting from contributions to the scheme) before 31 March 2017.

In this section:

1. (1)

   [deleted]2

2. (2)

   “pension decumulation product” is a product used to access pension savings and includes:2

   1. (a)

      a facility to enable a retail client to make an uncrystallised funds pension lump sum payment; 2

   2. (b)

      an option to take a small lump sum payment; 2

   3. (c)

      a drawdown pension; and2

   4. (d)

      a pension annuity; 2

3. (3)

   “pension savings” is the proceeds of the client'spersonal pension scheme, stakeholder pension scheme, or occupational pension scheme;

4. (4)

   “retirement risk warnings” are the warnings required to be given to a retail client at step 3 of the process specified in this section;

5. (5)

   “risk factors” are the attributes, characteristics, external factors or other variables that increase the risk associated with a retail client's decision to access their pension savings using a pension decumulation product;

6. (6)

   “signpost” is the written or oral statement encouraging a retail client to use pensions guidance or to take regulated advice to understand their options at retirement which is at step 1 of the process specified in this section.

This section applies to a firm communicating with a retail client in relation to accessing their pension savings using a pension decumulation product.

This section does not apply:

1. (1)

   to a firm giving regulated advice to a retail client on options to access their pension savings;

2. (2)

   if the firm has already provided the retirement risk warnings to the retail client in relation to their decision to access their pension savings and the firm has reasonable grounds to believe that the retirement risk warnings are still appropriate for the client.

A firm must follow the steps specified in this section at the point when the retail client has decided (in principle) to take one of the following actions (and before the action is concluded):

1. (1)

   buy a pension decumulation product; or

2. (2)

   vary their personal pension scheme, stakeholder pension scheme, FSAVC, retirement annuity contract or pension buy-out contract to enable the client to:

   1. (a)

      access pension savings using a drawdown pension; or

   2. (b)

      elect to make one-off, regular or ad-hoc uncrystallised funds pension lump sum payments2; or

3. (3)

   receive a one-off, regular or ad-hoc uncrystallised funds pension lump sum payment2; or

4. (4)

   access their pension savings using a drawdown pension; or2

5. (5)

   withdraw the funds in full from their pension savings, reducing the value of their rights to zero.2

1. (1)

   The first step is to ask the retail client whether they have received pensions guidance or regulated advice:

   1. (a)

      if the client says that they have, the firm must proceed to step 2; or

   2. (b)

      if the client says that they have not or is unsure, the firm must explain that the decision to access pension savings is an important one and encourage the retail client to use pensions guidance or to take regulated advice to understand their options at retirement.

2. (2)

   If, after giving the explanation in COBS 19.7.8R (1)(b), the retail client does not want to access pensions guidance or take regulated advice, the firm must proceed to step 2.

Based on how the retail client wants to access their pension savings, at step 2 the firm must ask the client questions to identify whether any risk factors are present, except where COBS 19.7.9AR applies2.

2If the value of the retail client’s pension savings is £10,000 or less and there are no safeguarded benefits, the firm:

1. (1)

   is not required to ask questions to identify whether any risk factors are present; and

2. (2)

   must prepare appropriate retirement risk warnings based on the risk factors relevant to each pension decumulation product it offers to enable retail clients to access their pension savings.

2A firm may ask the client the questions required by COBS 19.7.9R before the client has decided (in principle) to take one of the actions specified in COBS 19.7.7R to access their pension savings.

2If, to complete step 2, a firm relies on information gathered prior to the client’s decision to access their pension savings, the firm must be satisfied that this information is relevant, accurate and up-to-date before giving the risk warnings at step 3.

A firm must prepare the questions required by COBS 19.7.9 R before taking the steps for the first time, and must keep the questions up to date.

At step 3:2

1. (1)

   if the value of the retail client's pension savings is £10,000 or less and there are no safeguarded benefits, based on how the retail client wants to access their pension savings, a firm must give the client the appropriate retirement risk warnings prepared under COBS 19.7.9AR(2); and 2

2. (2)

   in all other cases, a firm must give the retail client appropriate retirement risk warnings in response to the client's answers to the firm's questions.2

A firm must prepare the retirement risk warnings required by COBS 19.7.13 R in good time before taking the steps for the first time, and must keep them up to date.

When communicating the signpost and retirement risk warnings, the firm must do so clearly and prominently.

Whatever the means of communication, the firm must ensure that the retail client cannot progress to the next stage of the sale unless the relevant signpost or retirement risk warning has been communicated to the client.

Firms must record whether the retail client has received:

1. (1)

   the retirement risk warnings at step 3 of the process specified in this section;

2. (2)

   regulated advice; and

3. (3)

   pensions guidance.

1In this section:

1. (1)

   ‘administration charges’, in relation to a member of a pension scheme, means any of the following to the extent that they may be used to meet the administrative expenses of the scheme, to pay commission or in any other way that does not result in the provision of pension benefits for or in respect of members:

   1. (a)

      any payments made to the scheme by, or on behalf or in respect of, the member; or

   2. (b)

      any income or capital gain arising from the investment of such payments; or

   3. (c)

      the value of the member’s rights under the scheme;

   but an administration charge does not include any charge made for costs:

   1. (d)

      incurred directly as a result of buying, selling, lending or borrowing investments; or

   2. (e)

      incurred solely in providing benefits in respect of the death of such a member; or

   3. (f)

      incurred in complying with a court order, where that order has provided that the operator, trustee or manager of the scheme may recover those costs; or

   4. (g)

      arising from earmarking orders or pension sharing arrangements pursuant to regulations made under section 24 or section 41 of the Welfare Reform and Pensions Act 1999.

2. (2)

   ‘anti-dilution mechanism’ is any method used to the benefit of an investment to offset the impact of inflows or outflows from that investment, whether by way of:

   1. (a)

      a levy; or

   2. (b)

      any adjustment enabling further investment into, or redemption of investments from, the investment.

3. (3)

   ‘arrangement’, in connection with a relevant scheme, is any investment available to scheme members for the investment of their pension contributions.

4. (4)

   ‘transaction costs’ are costs incurred as a result of the buying, selling, lending or borrowing of investments.

1This section applies to:

1. (1)

   an operator of a relevant scheme; and

2. (2)

   a firm which holds information needed for the calculation of transaction costs or administration charges in the course of providing services in connection with:

   1. (a)

      a relevant scheme;

   2. (b)

      an arrangement; or

   3. (c)

      an investment in which an arrangement is directly or indirectly invested.

1A firm must respond in a reasonable time and in a reasonably acceptable format to a request for information relating to transaction costs and administration charges relating to a particular arrangement (or any investment in which the arrangement is directly or indirectly invested) over a period of time from or on behalf of:

1. (1)

   an operator, trustee or manager of a relevant scheme; or

2. (2)

   another firm seeking to comply with its obligations under this section.

1In responding to the request referred to in COBS 19.8.4R, the firm must:

1. (1)

   calculate the transaction costs incurred in relation to the arrangement or investment to which the request relates (including transaction costs incurred in any investment in which the arrangement or investment is directly or indirectly invested) in accordance with this section;

2. (2)

   disclose the results of the aggregation of those transaction costs to the requesting person, along with a breakdown of the identifiable elements of those costs;

3. (3)

   disclose the administration charges incurred in that arrangement or any investment to which the request relates (including administration charges incurred in any investment in which the arrangement or investment is directly or indirectly invested); and

4. (4)

   provide other relevant information which would or may assist in making comparisons between the costs or charges in (1) to (3) and the equivalent costs or charges of other pension schemes where available.

1If a firm does not have the information necessary to comply with COBS 19.8.4R and COBS 19.8.5R, then it must:

1. (1)

   take reasonable steps to obtain that information; or

2. (2)

   where, despite having taken such reasonable steps, it remains unable to comply with COBS 19.8.4R and COBS 19.8.5R, provide a written explanation to the requesting party explaining why, including the percentage of investments in the arrangement (or investment in which the arrangement is directly or indirectly invested) for which information cannot be obtained, and indicating the categories of investments involved.

1A firm must calculate the transaction cost of buying or selling an investment as the difference between arrival price (AP) and execution price (EP) of that investment, multiplied by the number of units of, or in, the investment transacted, as follows:

1. (1)

   AP and EP are determined in accordance with this section;

2. (2)

   where an investment is purchased:

   transaction cost = (EP-AP) x (units); and

3. (3)

   where an investment is sold:

   transaction cost = (AP-EP) x (units).

1A firm must determine the arrival price as follows:

1. (1)

   for a transferable security, or other investment which there are frequent opportunities to dispose of, redeem, or otherwise realise at a price publicly available to market participants that is either a market price or a price made available or validated by valuation systems independent of the issuer:

   1. (a)

      the market mid-price at the time the order was transmitted to another person for execution or was executed, whichever is earlier

   2. (b)

      if no such price is available, then the last available mid-price on the day the order was executed, or, if this is not available, the closing mid-price on the day before; or

   3. (c)

      if the order to transact was executed on a day other than the day it was transmitted to another person for execution, the market opening mid-price on the day of execution, or, if this is not available, the closing mid-price the day before; or

   4. (d)

      if the order was executed during an auction, the most recently available mid-price of the asset prior to the auction; or

   5. (e)

      if an order is transmitted to another person for execution outside trading hours, the subsequent market opening mid-price.

2. (2)

   for an investment fund or other vehicle priced on a periodic basis:

   1. (a)

      for a dual-priced vehicle, the fair value mid-price of the vehicle at the pricing point when the transaction took place; or

   2. (b)

      for a single-priced vehicle, the fair value price of the vehicle at the pricing point when the transaction took place, prior to any dilution adjustment.

3. (3)

   for physical (in other words, real or tangible) assets, the price paid for that physical asset, excluding all charges, commissions, taxes and other payments associated with the transaction.

4. (4)

   for any other investment which does not fall into (1), (2) or (3):

   1. (a)

      the most recent independent valuation prior to the order to transact being executed, or, if earlier, transmitted to another person for execution, adjusted appropriately for market movements using an appropriate benchmark index; or

   2. (b)

      if no such valuation is available, then an estimate based on a reasonable appraisal of the fair value of the asset prior to the order to transact being executed.

1Where an order is split into multiple orders (‘child orders’) in the same investment and transmitted on the same day, the arrival price of the first child order must be used as the arrival price of all subsequent child orders on that day.

1 For orders in initial public offerings, placings and other issuance of securities, the transaction price must be used as the arrival price.

1 When determining the arrival price for a derivative where there is no publicly available price, a firm must determine the fair value price of the derivative.

1A firm must, in relation to a transaction involving foreign exchange, determine the arrival price using a reasonable estimate of the consolidated price rather than the price available from a single counterparty or foreign exchange platform, even if an agreement exists to undertake all foreign exchange transactions with a single counterparty.

1A firm must determine the execution price as the price at which a transaction is executed including all charges, commissions, taxes and other payments associated with the transaction, directly or indirectly, where those payments are made from the assets of the arrangement or of any investment in which the arrangement is directly or indirectly invested.

1A firm must calculate the transaction cost of a loan transaction as the difference between the charge paid by the ultimate borrower in relation to that loan and the amount received by the arrangement (or underlying investment).

1To determine the transaction cost of a borrowing transaction, a firm must use the amount paid for the loan.

1 The firm must aggregate and disclose, separately, the following transaction costs for each arrangement or investment and period to which the request relates:

1. (1)

   the sum of the transaction costs for buy and sell transactions factoring in anti-dilution mechanisms (see COBS 19.8.21R); and

2. (2)

   the sum of the transaction costs for lending and borrowing transactions.

1A firm using an anti-dilution mechanism in connection with an arrangement or investment may factor this into the aggregate transaction costs calculation as follows:

1. (1)

   where a levy is used, the monetary value of that levy may be subtracted from the aggregate transaction costs; and

2. (2)

   where an adjustment is made by enabling further investment into or redemption from an investment, the value of the benefit accruing to the investment may be subtracted from the aggregate transaction costs.

1In this section:

1. (1)

   “guaranteed minimum pension” has the meaning in section 8(2) of the Pension Schemes Act 1993;

2. (2)

   a “guaranteed quote” is a quote that:

   1. (a)

      is provided by a firm to a retail client for the purchase of a pension annuity; and

   2. (b)

      is based on sufficient information to successfully underwrite the proposed pension annuity;

3. (3)

   a “market-leading pension annuity quote” is a quote for a pension annuity that:

   1. (a)

      is generated by a firm by searching for, obtaining and comparing, pension annuities that are available to the retail client from across all of the pension annuity market using the same information as the firm has used to generate a guaranteed quote; and

   2. (b)

      the highest annual income from amongst all of the quotes generated under (a);

4. (4)

   “pension-related benefit” means one or more of the following:

   1. (a)

      an existing or future entitlement to a guaranteed annuity rate;

   2. (b)

      an entitlement to a pension commencement lump sum that exceeds 25% of the value of the retail client’s benefit under the occupational pension scheme, personal pension scheme or stakeholder pension scheme in which the retail client has an interest;

   3. (c)

      an existing or future entitlement to a guaranteed minimum pension; or

   4. (d)

      section 9(2B) rights;

5. (5)

   “pension annuity comparator information” means the information that a firm must provide under this section;

6. (6)

   “pension commencement lump sum” has the meaning as in Part 1 of Schedule 29 to the Finance Act 2004; and

7. (7)

   “section 9(2B) rights” has the same meaning as in regulation 2(1) of the Occupational Pension Schemes (Schemes that were Contracted-out) (No.2) Regulations 20152.

This section applies to a firm that:

1. (1)

   provides a retail client with a guaranteed quote for a pension annuity; or

2. (2)

   is asked by another firm (“F”) for a quote for a pension annuity where F is seeking a quote for the purposes of generating a market-leading pension annuity quote.

When providing a guaranteed quote to a retail client a firm must use the relevant template in COBS 19 Annex 3R to provide:

1. (1)

   the following information about the features of the pension annuity that is being offered:

   1. (a)

      the cost of the pension annuity where the cost is expressed as a single sum in pounds sterling net of any adviser charges;

   2. (b)

      if applicable, the amount and details of any adviser charges that the firm will be paying;

   3. (c)

      if applicable, the amount of any commission that will be paid and to whom any such commission will be paid;

   4. (d)

      the annual income the pension annuity will provide to the retail client expressed as a single sum in pounds sterling;

   5. (e)

      whether the annual income referred to in COBS 19.9.4R(1)(d) is guaranteed for any period of time and, if so, the duration of that period;

   6. (f)

      the frequency of payments that will be made to the retail client and if such payments will be paid in advance or in arrears;

   7. (g)

      whether the pension annuity will provide an annuity to only the retail client or to the retail client and another beneficiary; and

   8. (h)

      whether the annual income offered by the pension annuity will increase in value over time and, if so, the basis upon which it will increase;

2. (2)

   if applicable, information about:

   1. (a)

      the guaranteed annuity rate that a retail client is already entitled to or will be entitled to in the future;

   2. (b)

      the date from when the guaranteed annuity rate is payable; and

   3. (c)

      the annual income that a retail client can reasonably expect to receive pursuant to the guaranteed annuity rate;

3. (3)

   if applicable, information about:

   1. (a)

      the annual income that a retail client is already, or in the future will be, entitled to pursuant to either or both a right to a guaranteed minimum pension or section 9(2B) rights; and

   2. (b)

      the date from when that annual income is payable;

4. (4)

   if applicable, information about the maximum pension commencement lump sum that the retail client is entitled to and whether that lump sum would represent more than 25% of the value of the retail client’s benefit under the occupational pension scheme, personal pension scheme or stakeholder pension scheme in which the retail client has an interest;

5. (5)

   the helpline phone number and the website address for the Money Advice Service and an explanation that the phone number and website can be used to obtain pension annuity quotes from other pension annuity providers;

6. (6)

   information about how a retail client’s health or lifestyle may entitle the retail client to a pension annuity that pays a higher income (an enhanced annuity); and

7. (7)

   the comparison information required under COBS 19.9.7R.

1. (1)

   The requirement to provide the information required by COBS 19.9.4R and the related requirement in COBS 19.9.7R does not apply to a firm:

   1. (a)

      if that firm (“F1”) is reasonably satisfied that:

      1. (i)

         the retail client has already received the information required by COBS 19.9.4R from another firm (“F2”); and

      2. (ii)

         the information provided by F2 to the retail client relates to the same guaranteed quote that F1 would otherwise use as the basis for providing the information required by COBS 19.9.4R; or

   2. (b)

      in any case where a firm, during the same telephone conversation, provides a retail client with more than one guaranteed quote.

2. (2)

   Where (1)(b) applies, a firm must comply with COBS 19.9.4R if:

   1. (a)

      the retail client, during the same telephone conversation, selects one of the guaranteed quotes to explore further; or

   2. (b)

      the retail client subsequently contacts the firm to explore further one of the guaranteed quotes (“Q1”) that the firm has previously provided where Q1 was not, at the time it was provided, accompanied by the information required by COBS 19.9.4R.

A firm must:

1. (1)

   generate a market-leading pension annuity quote before providing a guaranteed quote to a retail client;

2. (2)

   determine which of the following will, or is most likely to, offer a retail client the highest annual income:

   1. (a)

      the pension annuity offered by the guaranteed quote (“A”);

   2. (b)

      the pension annuity offered by the market-leading pension annuity quote (“B”);

   3. (c)

      if applicable, the pension that a retail client is entitled to, or will be entitled to, pursuant to the retail client’s entitlement to a guaranteed annuity rate (“C”); or

   4. (d)

      if applicable, the minimum pension that a retail client is entitled to, or will be entitled to, pursuant to the retail client’s entitlement to either or both a guaranteed minimum pension or section 9(2B) rights (“D”);

3. (3)

   use the template in:

   1. (a)

      Part 1 of COBS 19 Annex 3R where B offers a retail client the highest annual income; or

   2. (b)

      Part 2 of COBS 19 Annex 3R where A, C or D offers a retail client the highest annual income;

4. (4)

   where B offers the highest annual income:

   1. (a)

      calculate as a single sum in pounds sterling the amount by which B provides a higher annual income than A;

   2. (b)

      include that amount in the relevant place in the template; and

   3. (c)

      include a statement making it clear that a retail client could obtain a higher annual income by searching the open market for a pension annuity;

5. (5)

   where A offers the highest annual income, include a statement that A will provide the retail client with the highest annual income; and

6. (6)

   if applicable, where C or D will, or is likely to, provide the highest annual income:

   1. (a)

      calculate as a single sum in pounds sterling the amount by which C or D, as applicable, will, or is likely to, provide a higher annual income than A;

   2. (b)

      include that amount in the relevant place in the template; and

   3. (c)

      warn the retail client that:

      1. (i)

         the entitlement to, as applicable, C or D, will be extinguished if the retail client accepts A; and

      2. (ii)

         accepting A will result in the retail client receiving a lower annual income than the retail client is entitled to pursuant to, as applicable, C or D.

A firm (“F1”) must take reasonable steps to provide any information requested of it by another firm (“F2”) where such information is requested in order for F2 to comply with its obligations under COBS 19.9.4R(7) and the related requirement in COBS 19.9.7R.

1. (1)

   This rule applies if a retail client is entitled to a pension commencement lump sum that would amount to more than 25% of the value of the retail client’s benefit under the occupational pension scheme, personal pension scheme or stakeholder pension scheme in which the retail client has an interest.

2. (2)

   A firm must warn the retail client if the pension annuity offered by:

   1. (a)

      the guaranteed quote; or

   2. (b)

      the market-leading pension annuity quote,

will, if accepted, reduce the pension commencement lump sum that a retail client would otherwise be entitled to receive.

1. (1)

   This rule applies where a retail client is unable to confirm an entitlement to a pension-related benefit.

2. (2)

   This rule does not apply if a firm is the retail client’s current provider of a pension-related benefit.

3. (3)

   A firm must take reasonable steps to assist a retail client ascertain whether the retail client is entitled to a pension-related benefit.

4. (4)

   If, despite having taken reasonable steps under (3), it remains unclear whether a retail client:

   1. (a)

      is entitled to a guaranteed annuity rate, a firm must proceed as if the requirement in COBS 19.9.4R(2) is not applicable;

   2. (b)

      is entitled to a guaranteed minimum pension, a firm must proceed as if the requirement in COBS 19.9.4R(3) relating to information about a guaranteed minimum pension is not applicable;

   3. (c)

      has section 9(2B) rights, a firm must proceed as if the requirement in COBS 19.9.4R(3) relating to information about section 9(2B) rights is not applicable; or

   4. (d)

      is entitled to a pension commencement lump sum, a firm must proceed as if the requirement in COBS 19.4.4R(4) is not applicable.

1. (1)

   This rule applies to a firm where the firm requires the retail client’s consent to the firm generating, on behalf of the retail client, a market-leading pension annuity quote and that consent is not obtained.

2. (2)

   A firm must take reasonable steps to obtain a retail client’s consent.

3. (3)

   Where this rule applies:

   1. (a)

      COBS 19.9.4R(7) and COBS 19.9.7R do not apply;

   2. (b)

      a firm must include information warning the retail client that a higher annual income might be obtained by searching the open market for a pension annuity; and

   3. (c)

      a firm must use the template in Part 3 of COBS 19 Annex 3R to provide the applicable pension annuity comparator information.

1. (1)

   A firm must provide the pension annuity comparator information in a durable medium or make the information available on a website (where that does not constitute a durable medium) that meets the website conditions.

2. (2)

   If the requirement to provide the pension annuity comparator information arises during a telephone conversation with a retail client, a firm must:

   1. (a)

      orally provide the pension annuity comparator information over the telephone;

   2. (b)

      provide the pension annuity comparator information in a durable medium or make the information available on a website (where that does not constitute a durable medium) that meets the website conditions; and

   3. (c)

      conclude a sale of a pension annuity only if the retail client agrees to receiving the pension annuity comparator information referred to in (b) after the sale has been concluded.

3. (3)

   If a firm provides the pension annuity comparator information on paper, it must use a single sheet of A4 paper.

4. (4)

   The requirement in (3) to use a single sheet of paper does not apply if a retail client asks for the pension annuity comparator information to be provided in an accessible format and the fulfilment of that request will necessitate the use of more than a single sheet of A4 paper.

This annex belongs to COBS 19.1.3AR.

1

1.1 The first page of the transfer value comparator must follow the format and wording shown in Table 1, except that alternative colours may be used in the chart and the scale of the charts may be changed (as long as the y-axis starts at £0). Note that the figures in Table 1 are used for illustration only.

1.2 Where COBS 19 Annex 4B 1R applies (where the retail client has 12 months or more before reaching normal retirement age), the second page of the transfer value comparator must contain the notes set out at Table 2.

1.3 Where COBS 19 Annex 4B 2R applies (where the retail client has less than 12 months before reaching normal retirement age), the second page of the transfer value comparator must contain the notes set out at Table 3.