Except where a firm is providing abridged advice (see COBS 19.1A), this section applies to a firm which:10

1. (1)

   gives advice on pension transfers, pension conversions and pension opt-outs to a retail client; or10

2. (2)

   arranges pension transfers, pension conversions or pension opt-outs,10

in relation to:

1. (3)

   a pension transfer;10

2. (4)

   a pension conversion; or10

3. (5)

   a pension opt-out from a scheme with safeguarded benefits or potential safeguarded benefits10.

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 arrangement10 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 comparator10.

      7
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 comparator10 contribute towards the personal recommendation.7

5. (5)

   Prior to making a personal recommendation to effect a pension transfer or pension conversion, a firm must obtain evidence that the client can demonstrate that they understand the risks to them of proceeding with the pension transfer or pension conversion.10

7To prepare an appropriate transfer analysis a firm must:

1. (1)

   assess the benefits likely to be paid and options available under the ceding arrangement10;

2. (2)

   compare (1) with those benefits and options available under the proposed arrangement;10

3. (3)

   where the proposed arrangement is a personal pension scheme, stakeholder pension scheme or defined contribution occupational pension scheme that is not a qualifying scheme, and a qualifying scheme is available to the retail client, compare the benefits and options available under the proposed arrangement with the benefits and options available under the default arrangement of the qualifying scheme; and10

4. (4)

   undertake the analysis in (1), (2) and (3) in accordance with COBS 19 Annex 4A and COBS 19 Annex 4C.10

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 comparator10, a firm must compare the transfer value offered by the ceding arrangement10 with the estimated value needed today to purchase the future income benefits10 available under the ceding arrangement10 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 using the notes set out in COBS 19 Annex 5 1.2R.10

3. (3)

   When the retail client has passed the normal retirement age of the ceding arrangement, the firm must provide a transfer value comparator applying the retirement age assumed in the calculation of the transfer value.10

4. (4)

   Where the ceding arrangement allows the retail client to take their benefits at an age below the scheme’s normal retirement age, with no reduction for early payment and where no consent is required, then the firm must provide a transfer value comparator assuming that the retail client will retire at this age. 10

7If a firm arranges a pension transfer, pension conversion10 or pension opt-out for a retail client without making a personal recommendation in relation to the pension transfer, pension conversion or pension opt-out10 it must:

1. (1)

   make a clear record of the fact that the firm has not given that10personal recommendation to the client;10

2. (1A)

   where the pension transfer or pension conversion is within the scope of the requirement in section 48 of the Pension Schemes Act 2015:10

   1. (a)

      not proceed with the arrangements until it has received confirmation, from the firm that gave the advice to the retail client, that the retail client has received a personal recommendation in accordance with the requirements of COBS 19.1 (and that it was not abridged advice); and 10

   2. (b)

      if the client has received a personal recommendation, ask whether or not the recommendation was to transfer or convert; and10

   3. (c)

      retain clear records showing evidence of (a) and (b);10

3. (1B)

   where the recommendation in (1A) was not to transfer or convert the retail client’s subsisting rights in respect of safeguarded benefits, the firm arranging the pension transfer or pension conversion must: 10

   1. (a)

      warn the retail client that they are acting against advice not to transfer or convert;10

   2. (b)

      ask the retail client whether they understand the consequences of acting against advice;10

   3. (c)

      where the retail client does not understand the consequences of acting against advice, refuse to arrange the pension transfer or conversion and instead refer the retail client back to the firm that advised them not to transfer or convert for an explanation of that advice; and10

   4. (d)

      retain a record of the communications with the retail client that evidence compliance with the requirements in (a) to (c);10

4. (2)

   retain the records in (1), (1A) and (1B)10 indefinitely.

10Where the firm that has given advice to a retail client is asked by a firm arranging a pension transfer or pension conversion that is within the scope of the requirement in section 48 of the Pension Schemes Act 2015 to:

1. (a)

   provide a confirmation that the retail client has received a personal recommendation in accordance with the requirements of COBS 19.1 (and that it was not abridged advice); and

2. (b)

   if the client has received a personal recommendation, confirm whether or not the recommendation was to transfer or convert,

the advising firm must provide the requested information to the firm arranging a pension transfer or pension conversion as soon as reasonably practicable.

10Prior to finalising the firm’s personal recommendation, a firm seeking evidence that the client can demonstrate their understanding of the risks in accordance with COBS 19.1.1CR(5) must:

1. (1)

   make a clear record of either:

   1. (a)

      the evidence showing that the client demonstrated that they understood the risks involved in effecting a pension transfer or pension conversion and the steps taken by the firm to obtain that; or

   2. (b)

      if the firm could not obtain evidence that the client could demonstrate that understanding and the firm did not change to a recommendation not to transfer, the steps taken by the firm to obtain the evidence and clear evidence and explanation of how the firm satisfied itself on reasonable grounds that it was still suitable to continue to make the same personal recommendation; and

2. (2)

   retain the records in (1) indefinitely.

1This section applies to a firm which gives abridged advice in relation to a pension transfer or pension conversion to a retail client.

1A firm may not give abridged advice to the extent that the safeguarded benefits involved are guaranteed annuity rates.

1A firm giving a retail client abridged advice must either:

1. (1)

   make a personal recommendation that the client remains in their ceding arrangement; or

2. (2)

   do all of the following:

   1. (a)

      inform the client that they are unable to take a view on whether it is in the client’s best interests to transfer or convert without undertaking full pension transfer or conversion advice, even when the firm considers that it may be in the client’s best interests;

   2. (b)

      check if the client wants the firm to provide full pension transfer or conversion advice and check that the client understands the associated cost; and

   3. (c)

      (if the firm has reason to believe that the client is suffering from serious ill-health or experiencing serious financial difficulty) make the client aware of the implications for the level of adviser charges if the client proceeded to full pension transfer or conversion advice.

1A firm must not provide a confirmation for the purposes of section 48 of the Pension Schemes Act 2015 unless it has provided full pension transfer or conversion advice.

1A firm must not carry out appropriate pension transfer analysis and/or prepare a transfer value comparator and/or consider the proposed arrangement when providing abridged advice to a retail client.

1A firm must ensure that abridged advice is given or checked by a pension transfer specialist.

1A firm must not arrange a transaction for a client where only abridged advice has been given.

1This section applies to a firm in relation to the provision of:

1. (1)

   advice on conversion or transfer of pension benefits except where:

   1. (a)

      the only safeguarded benefit involved is a guaranteed annuity rate; or

   2. (b)

      it is abridged advice;

2. (2)

   investment advice or other services in connection with a pension transfer or pension conversion (including, but not limited to, implementing and arranging a pension transfer or pension conversion);

3. (3)

   ongoing advice or other services in relation to rights or interests in a non-DB pension scheme derived in whole or part from a pension transfer or pension conversion; or

4. (4)

   any related services.

1Except as specified in COBS 19.1B.9(1) or (2), a firm must ensure that both the methodology for calculating any part of, and the total value of, the firm’s adviser charges, employer or trustee funded pension advice charge or remuneration do not vary depending on whether or not:

1. (1)

   the firm makes a personal recommendation to a retail client to effect a pension transfer or a pension conversion; and/or

2. (2)

   the retail client effects a pension transfer or a pension conversion; and/or

3. (3)

   (in relation to ongoing advice or other services in relation to the retail client’s rights or interests in a non-DB pension scheme) the rights or interests in the non-DB pension scheme include sums derived from a pension transfer or a pension conversion.

1Where:

1. (1)

   one firm carries out multiple services for a particular retail client; and/or

2. (2)

   a firm and one or more firms that are its associates (including any other firm providing investment advice in relation to a proposed arrangement) are involved then,

   COBS 19.1B.3R applies to the firm in relation to both the methodology for calculating any part of, and the total value of, the adviser charges, employer or trustee funded pension advice charge and/or remuneration of the firm and, where applicable, any of those associates.

1. (1)

   1A firm must not allow itself to be part of any charging structure or arrangement (operated by the firm or any associate) which could create a potential incentive to any firm or any firm that is its associate to recommend or arrange a pension transfer or a pension conversion to or for a retail client or otherwise could circumvent the rules in this section.

2. (2)

   This includes charging structures in relation to the pricing of other goods or services provided to the client or a connected person at any time by any firm involved in the pension transfer or pension conversion arrangements, or by any associate of the firm.

1A firm need not comply with COBS 19.1B.3R or COBS 19.1B.5R in relation to full pension transfer or conversion advice if it has satisfied itself, on reasonable grounds and based on adequate supporting evidence, that the retail client is unable to pay for full pension transfer or conversion advice without using funds that are not reasonably available, and is either:

1. (1)

   suffering from serious ill-health; or

2. (2)
   1. (a)

      experiencing serious financial difficulty or likely would be if they had to pay for full pension transfer or conversion advice on a non-contingent basis; and

   2. (b)

      would be able to access their pension fund immediately after a pension transfer or a pension conversion has taken effect.

1A firm that charges a retail client in relation to full pension transfer or conversion advice on a contingent basis in reliance on COBS 19.1B.9R(1) or (2), must ensure that the methodology for calculating, and the total value of, the firm’s and any associate’s adviser charges, employer or trustee funded pension advice charge or remuneration for that advice, any related service, and any ongoing advice or other services in relation to the retail client’s rights or interests in a non-DB pension scheme, is not higher than if they had charged the retail client in relation to full pension transfer or conversion advice on a non-contingent basis.

1Contravention of any of COBS 19.1B.15E (1) to (4) may be relied upon as tending to establish contravention of COBS 19.1B.9R and therefore COBS 19.1B.3R or COBS 19.1B.5R.

1In addition to any other record-keeping requirements to which the firm is subject, a firm charging a retail client on a contingent basis in reliance on one of the exceptions in COBS 19.1B.9R(1) or (2) must make and retain indefinitely a record of the evidence it relied upon to satisfy itself that all the relevant requirements in COBS 19.1B.9R were met in relation to the retail client.

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;

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; and5

   232
3. (3)

   (in the case of a pension transfer, other than where the only safeguarded benefit involved is a guaranteed annuity rate, where the proposed arrangement is a personal pension scheme, stakeholder pension scheme or defined contribution occupational pension scheme that is not a qualifying scheme) explain why, at the time of the personal recommendation, it considers the proposed arrangement to be more suitable than the default arrangement of an available qualifying scheme.5

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 5or a statement provided by a firm that gives materially the same information;

2. (1A)

   ‘Money Advice Service fact sheet’ means the guide “Your pension: it's time to choose”, available on www.moneyadviceservice.org.uk;5

3. (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;

4. (3)

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

5. (4)

   'open market options statement' means the information specified in COBS 19.4.6AR5, provided in a durable medium, to assist the retail client to make an informed decision about their open market options;

6. (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;

7. (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;

8. (7)

   'reminder' is the requirement in COBS 19.4.9R to remind the retail client about the open market options statement and the availability of pensions guidance;5

9. (7A)

   ‘retirement risk warnings’ are the warnings required to be given to a retail client in accordance with COBS 19.4.8ER(2); 5

10. (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; and5

11. (9)

    ‘single page summary document’ is a document produced by a firm that contains the information specified in COBS 19.4.6CR. 5

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)

   5A firm must give a retail client an open market options statement:

   1. (a)

      within two months after the client reaches 50 years of age; and

   2. (b)

      between four to ten weeks before the client reaches each birthday that is at five year intervals after the client’s 50th birthday.6

   3. (c)

      [deleted]6

2. (1A)

   The requirement in (1) does not apply if:6

   1. (a)

      the firm has given the client such a statement in the last 12 months; or6

   2. (b)

      the client’s pension fund is fully crystallised; or6

   3. (c)

      the firm has received a request from the client for their pension fund to be paid by way of a serious ill-health lump sum and that request has not been rejected. 6

3. (2)

   A firm must also 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; or

   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 they are considering, or have decided:

      1. (i)

         to discontinue an income withdrawal arrangement; or

      2. (ii)

         to take a further sum of money from their pension savings to exercise open market options; or

   4. (d)

      if the retail client requests to access their pension savings for the first time, except where the retail client requests that their pension fund is paid to them by way of a serious ill-health lump sum6;

4. (2A)

   The requirement in (2) does not apply if:6

   1. (a)

      the firm has given the client such a statement in the last 12 months; or6

   2. (b)

      the firm has received a request from the client for their pension fund to be paid by way of a serious ill-health lump sum and that request has not been rejected. 6

5. (3)

   If after taking reasonable steps to comply with the requirements in (1) or (2) 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.

6. (4)

   Where a firm’s obligation to send an open market options statement is only dis-applied because of a client’s request that their pension fund is paid to them by way of a serious ill-health lump sum (see COBS 19.4.5AR(1A)(c) or COBS 19.4.5AR(2A)(b)), but that request is subsequently rejected, a firm must send to the client an open market options statement within two months of the decision to reject. 6

1. (1)

   5An open market options statement given in accordance with COBS 19.4.5AR(1)(a) must include:

   1. (a)

      a single page summary document; and

   2. (b)

      appropriate retirement risk warnings.

2. (2)

   All other open market options statements must include:

   1. (a)

      a single page summary document;

   2. (b)

      a fact sheet;

   3. (c)

      appropriate retirement risk warnings;

   4. (d)

      a statement about whether any guarantees apply and, if so, how they work; and

   5. (e)

      any other information to enable the retail client to be able to make an informed decision about whether to exercise, or to decline to exercise, open market options.

1. (1)

   5The single page summary document must not exceed a single side of A4-sized paper when printed.

2. (2)

   The requirement in (1) does not apply if a retail client asks for the information to be provided in an accessible format and the fulfilment of that request will necessitate the use of more than a single side of A4-sized paper.

5The single page summary document must include the following information:

1. (1)

   the retail client’s name;

2. (2)

   the retail client’s intended retirement date;

3. (3)

   the firm’s name;

4. (4)

   if the retail client makes or receives employment-related contributions:

   1. (a)

      the employer’s name; and

   2. (b)

      the amount that the employer and employee have contributed to the retail client’s pension savings in the last year (if applicable);

5. (5)

   the current value of the retail client’s pension savings;

6. (6)

   if relevant, a statement warning the retail client that the current value of their pension savings may be subject to early exit charges or other withdrawal charges when accessed;

7. (7)

   a statement about whether any guarantees apply and, if so, where to find out further information;

8. (8)

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

9. (9)

   if the document is required to be provided up to six months before the retail client’s intended retirement date, a statement asking the retail client to consider whether they are saving enough to meet their needs at retirement;

10. (10)

    a clear and prominent statement about the availability of 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 pensions guidance is a free impartial service to help consumers to understand their options at retirement;

    4. (d)

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

    5. (e)

       the government logo and pensions guidance logo next to or above the statement.

4An open market options statement must not include financial promotions5 for a pension decumulation product.

5A firm must prepare the retirement risk warnings before providing the appropriate retirement risk warnings required by COBS 19.4.6AR for the first time, and must also keep the warnings up to date.

5To prepare retirement risk warnings a firm must:

1. (1)

   identify the main risk factors relevant to retail clients’ exercise of open market options; and

2. (2)

   prepare appropriate retirement risk warnings in relation to each of those risk factors.

5To provide appropriate retirement risk warnings a firm must:

1. (1)

   using information held about the retail client and their open market options, identify what risk factors are most likely to be present; and

2. (2)

   provide appropriate retirement risk warnings to the retail client in relation to the risk factors identified in (1).

5Retirement risk warnings which are provided between:

1. (1)

   four to ten weeks before the client reaches 55 years of age; and

2. (2)

   seven months before the retail client’s intended retirement date,

must include a clear and prominent statement that accessing pension savings at this point in time may not be the best option.

5The firm must provide the retail client with the following information separately to the retirement risk warnings:

1. (1)

   the key assumptions that were used to prepare the retirement risk warnings; and

2. (2)

   the personal data it relied on to provide the retirement risk warnings.

1. (1)

   5The retirement risk warnings must not exceed a single side of A4-sized paper when printed.

2. (2)

   The requirement in (1) does not apply if a retail client asks for the retirement risk warnings to be provided in an accessible format and the fulfilment of that request will necessitate the use of more than a single side of A4-sized paper.

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)

   provide the client with a clear and prominent statement recommending that the client uses the pensions guidance and that appointments are available;5 and

4. (4)

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

4The reminder must not include financial promotions5 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 19.4.5AR5 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:3

1. (1)

   a firm which operates a relevant scheme in which there are at least two relevant policyholders; or3

2. (2)

   a firm which offers or has decided to offer a pathway investment.3

3In this section:

1. (1)

   “drawdown fund” means either a capped drawdown pension fund or a flexi-access drawdown pension fund;

2. (2)

   “offer” means where a firm (F1) makes a pathway investment available for investment in the drawdown fund which F1 operates, where the pathway investment is either:

   1. (a)

      manufactured by F1; or

   2. (b)

      manufactured by another firm (F2);

3. (3)

   “pathway firm” means a firm which offers a pathway investment;

4. (4)

   “pathway investor” means a retail client investing in a firm’spathway investment;

5. (5)

   “referring” means a firm which arranges for a retail client to invest in a pathway investment available through a transfer to the drawdown fund operated by another firm (F2), where F2 offers its own manufacturedpathway investment;

6. (6)

   “stewardship” relates to a firm’s exercise of rights or engagement activities in relation to the investments attributable to the firm’srelevant policyholders or pathway investors, and may include:

   1. (a)

      the exercise of a firm’s voting rights in those investments; and

   2. (b)

      monitoring and engaging on matters such as strategy, performance, risk, culture and governance of the investments;

7. (7)

   “IGC’s remit of review” means the remit of the IGC as described in COBS 19.5.5R(2), COBS 19.5.5R(2A), COBS 19.5.5R(2B), COBS 19.5.5R(2C), and, where applicable COBS 19.5.5R(2D) and COBS 19.5.5R(2E).

4In this section “administration charges” and “transaction costs” have the same meaning as in COBS 19.8.1R.

A firm (Firm A) must establish an IGC, unless:3

1. (1)

   Firm A has established a governance advisory arrangement in accordance with COBS 19.5.3R; or3

2. (2)

   another firm in Firm A’s group has already established an IGC under this section, and Firm A has made arrangements with that IGC to cover a relevant scheme operated by Firm A or a pathway investment offered by Firm A.3

1. (1)

   If a firm considers it appropriate, it may establish a governance advisory arrangement instead of an IGC, having regard to:3

   1. (a)

      for a relevant scheme operator, the size, complexity and nature of the relevant scheme it operates; or3

   2. (b)

      for a pathway firm, the size of the take up, or expected size of the take up, complexity and nature of the pathway investment.3

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:3

   1. (a)

      relevant policyholders and any other members or clients a firm asks the IGC to consider; or3

   2. (b)

      pathway investors;3

2. (2)

   the IGC will assess the ongoing value for money for relevant policyholders delivered by a relevant scheme3 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; 3

   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; and3

   6. (f)

      whether the communications to relevant policyholders are fit for purpose and properly take into account the relevant policyholders’ characteristics, needs and objectives;3

3. (2A)

   the IGC will assess the ongoing value for money for pathway investors delivered by a pathway investment particularly, though not exclusively, through assessing:3

   1. (a)

      whether the pathway investment offered by the firm:3

      1. (i)

         is designed and managed in the interests of pathway investors; and3

      2. (ii)

         has a clear statement of aims and objectives;3

   2. (b)

      whether the characteristics and net performance of the pathway investment are regularly reviewed by the firm to ensure alignment with the interests of pathway investors and that the firm takes action to make any necessary changes;3

   3. (c)

      whether core financial transactions are processed promptly and accurately;3

   4. (d)

      the levels of charges borne by pathway investors;3

   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 drawdown fund of pathway investors, including transaction costs; and3

   6. (f)

      whether the communications to pathway investors are fit for purpose and properly take into account the pathway investors’ characteristics, needs and objectives;3

4. (2B)

   where a firm has an investment strategy or makes investment decisions which could have a material impact on the relevant policyholders’ or pathway investors’ investment returns, the IGC will consider and report on:3

   1. (a)

      the adequacy and quality of the firm’s policy (if any) in relation to ESG financial considerations;3

   2. (b)

      the adequacy and quality of the firm’s policy (if any) in relation to non-financial matters; and 3

   3. (c)

      how the considerations or matters in (a) and (b) are taken into account in the firm’sinvestment strategy or investment decision making; and3

   4. (d)

      the adequacy and quality of the firm’s policy (if any) in relation to stewardship;3

5. (2C)

   where the firm does not have a policy in relation to ESG financial considerations, non-financial matters or stewardship, the IGC will in each case consider and report on the firm’s reasons for not having a policy;3

6. (2D)

   where the firm has not already adequately taken into account, in its investment strategy or investment decision making, other financial considerations that pose a particular and significant risk of financial harm to the relevant policyholders or pathway investors, the IGC will also:3

   1. (a)

      consider and report on the adequacy and quality of the firm’s policy (if any) in relation to those other financial considerations, and whether and how those considerations are taken into account in the firm’sinvestment strategy or investment decision; or3

   2. (b)

      consider and report on the firm’s reasons for not having a policy in relation to those considerations;3

7. (2E)

   the IGC will consider and report on the extent to which the firm has implemented its stated policies in relation to the considerations and matters in (2B), (2C), and, where applicable (2D);3

8. (3)

   in relation to the IGC’s remit of review,3 the IGC will raise with the firm'sgoverning body any concerns it may have:3

   1. (a)

      in relation to any of the matters it has assessed or considered; or3

   2. (b)

      where the IGC is unable to obtain or has difficulties obtaining from the firm the information it requires;3

9. (3A)

   once a decision has been made by a firm to offer a pathway investment, the IGC must raise any concerns under (3):3

   1. (a)

      in good time to give the firm’sgoverning body a proper opportunity to consider and address the IGC’s concerns, before the pathway investment is offered to retail clients; and3

   2. (b)

      on an ongoing basis in relation to the pathway investment it offers;3

10. (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;

11. (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;

12. (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:3

       1. (i)

          the value for money delivered by a relevant scheme or a pathway investment, particularly against the matters listed under (2) or (2A); and3

       2. (ii)

          the adequacy and quality of the firm’s policies, or reasons for not having policies, in relation to the considerations and matters listed under (2B), (2C) and (if applicable) (2D); 3

    2. (aa)

       the extent to which the firm has implemented its stated policies in relation to the consideration and matters in (2B), (2C) and (if applicable) (2D);3

    3. (b)

       how the IGC has considered relevant policyholders' or pathway investors’3 interests;

    4. (c)

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

    5. (d)

       how the IGC has sufficient expertise, experience and independence to act in relevant policyholders' or pathway investors’3 interests;

    6. (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;

    7. (f)

       the arrangements put in place by the firm to ensure that the views of relevant policyholders or pathway investors’3 are directly represented to the IGC; and4

    8. (g)

       4administration charges and transaction costs information complying with the requirements in COBS 19.5.16R;

13. (7)

    4the Chair of the IGC will ensure the annual report is produced by 31 July each year, in respect of the previous calendar year;

14. (8)

    4the IGC will ensure the publication of administration charges and transaction costs information complying with the requirements in COBS 19.5.13R;

15. (9)

    4the IGC will ensure that all members of each relevant scheme are provided with an annual communication complying with the requirements in COBS 19.5.17R;

16. (10)

    4the IGC will make available the annual communication referred to in (9), on request, to:

    1. (a)

       relevant scheme members’ spouses or civil partners; and

    2. (b)

       persons within the application of the relevant scheme and qualifying or prospectively qualifying for benefits under the relevant scheme; and

17. (11)

    4the IGC will ensure that information is communicated under this rule in a manner that pays due regard to the purposes for which relevant policyholders might reasonably use the information.

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 in good time3 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 or pathway investors3 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. (5A)

   for any pathway investment, take reasonable steps to address any concerns raised by the IGC about the matters in COBS 19.5.5R(3) and (3A):3

   1. (a)

      before the firm offers the pathway investment, and3

   2. (b)

      promptly, for any pathway investment it already offers.3

7. (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;

8. (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); 4

9. (8)

   make available the IGC’s terms of reference and the three most recent annual reports, in a way appearing to the firm to be best calculated to bring them to the attention of relevant policyholders and their employers or to the attention of pathway investors3; and

   4
10. (9)

    4provide each relevant scheme’s IGC with administration charges and transaction costs information, setting out the costs and charges for each default arrangement and each alternative fund option that the member is able to select.

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 matters in the IGC’s remit of review3.

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.

4The administration charges and transactions costs information referred to in COBS 19.5.5R(8) must, in relation to each relevant scheme:

1. (1)

   be published by 31 July each year, in respect of the previous calendar year;

2. (2)

   be available for free on a publicly accessible website;

3. (3)

   include the costs and charges for each default arrangement and each alternative fund option that a member is able to select; and

4. (4)

   include an illustration of the compounding effect of the administration charges and transaction costs, based on either the assumptions contained in COBS 13 Annex 2 or those in Version 4.2 of the Actuarial Standard Technical Memorandum (AS TM1) produced by the Financial Reporting Council, for a representative range of fund options that a member is able to select.

4Regarding transaction costs:

1. (1)

   the requirements in COBS 19.5.13R(3) and COBS 19.5.16R(1) apply to the extent that such information is available to the IGC; and

2. (2)

   the published information should include a warning giving brief details of any unavailable information that the IGC is aware of.

4The administration charges and transaction costs information in the IGC’s annual report referred to in COBS 19.5.5R(6)(g) must, in relation to each relevant scheme:

1. (1)

   at a minimum, include the costs and charges for each default arrangement;

2. (2)

   explain how a relevant scheme member can access the costs and charges information for each default arrangement and each alternative fund option that a member is able to select, including providing a link to the website required by COBS 19.5.13R(2); and

3. (3)

   be published alongside any information in the IGC’s annual report relating to the relevant scheme’s default investment strategy and value for members.

4The annual communication referred to in COBS 19.5.5R(9) must:

1. (1)

   include a brief description of the most recent transaction costs and administration charges information that has been published in accordance with COBS 19.5.13R, and an explanation of how that information is relevant to the relevant scheme member; and

2. (2)

   explain how a relevant scheme member can access the information referred to in (1), including providing a link to the website required by COBS 19.5.13R(2).

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.

2Where a bond transaction is executed on an over the counter basis after bid prices and offer prices have been obtained from more than one potential counterparty, the arrival price must be taken to be:

1. (1)

   if the best bid price is below the best offer price, the mid-point between the best bid price and the best offer price;

2. (2)

   if the best bid price is higher than the best offer price, the best bid price in the case of a sale or the best offer price in the case of a purchase; or

3. (3)

   if the best bid price is equal to the best offer price, that price.

2Where a bond transaction is executed on an over the counter basis after either a bid price or an offer price has been obtained, the arrival price must be estimated as follows:

1. (1)

   by reference to the bid/offer spread on transactions in bonds with similar characteristics to the bond in question; or

2. (2)

   by reference to a composite of indicative bid and offer quotes; or

3. (3)

   by any other reasonable method.

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.

Subject to COBS 19.8.22R, a2firm 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.

2When aggregating transaction costs, a firm must not subtract any portion of a benefit derived from an anti-dilution mechanism that would reduce the aggregate transaction cost below zero.

1In this section:

1. (-1)

   an “enhanced annuity” refers to a pension annuity that pays a higher level of income due to a retail client’s health or lifestyle;3

2. (1)

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

3. (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;

4. (2A)

   an “income quote” is a guaranteed quote that offers at least the level of annual income requested by a retail client;3

5. (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:4

      1. (i)

         the same information as the firm has used to generate a guaranteed quote; or4

      2. (ii)

         answers obtained from the retail client which allow the firm to determine whether the client may be eligible for an enhanced annuity, where the firm itself cannot generate an enhanced annuity quote using those answers; and4

   2. (b)

      provides the retail client with either:3

      1. (i)

         the highest annual income from amongst all of the quotes generated under (a); or3

      2. (ii)

         (in the case of an income quote) at least the amount of annual income requested by the retail client at the lowest purchase price from amongst all of the quotes generated under (a).3

6. (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 sum3 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;

7. (5)

   “pension annuity comparator information” means the information that a firm must provide under this section; and3

8. (6)

   [deleted]3

9. (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 sum3 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)

   if applicable,3 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.

1. (1)

   3When a firm generates a market-leading pension annuity quote it must take reasonable steps to obtain from the retail client answers to the questions that are required4 to determine whether the client is eligible for an enhanced annuity.

2. (2)

   If the retail client is eligible for an enhanced annuity the firm must generate a market-leading quote for an enhanced annuity.

3. (3)

   Firms may only use the information gathered in (1) for the purposes of:

   1. (a)

      generating a guaranteed quote and a market-leading pension annuity quote;

   2. (b)

      assisting another firm, on request, to generate a market-leading quote (COBS 19.9.9R); and

   3. (c)

      underwriting, administering, and entering into a contract for an enhanced annuity;

   unless the retail client consents to it being used for other purposes.

4. (4)

   If the retail client refuses to answer a firm’s questions that are required to determine whether the retail client is eligible for an enhanced annuity, a firm must: 4

   1. (a)

      generate a market-leading pension annuity quote using the same information that it used to generate its guaranteed quote; and4

   2. (b)

      compare the market-leading pension annuity quote referred to in (a) with its guaranteed quote.4

A firm must:

1. (1)

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

2. (2)

   unless (2A) applies,3 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. (2A)

   in cases where a retail client has requested an income quote, determine which of the following will, or is most likely to, offer a retail client with at least the annual income that the retail client has requested at the lowest purchase price:3

   1. (a)

      the pension annuity offered by the guaranteed quote (“A1”);3

   2. (b)

      the pension annuity offered by the market-leading pension annuity quote (“B1”); or3

   3. (c)

      if applicable, the pension that the retail client is entitled to, or will be entitled to, pursuant to their entitlement to a guaranteed annuity rate (“C1”);3

4. (3)

   use the template in:

   1. (a)

      Part 1 of COBS 19 Annex 3R where (2) applies and3 B offers a retail client the highest annual income; 3

   2. (b)

      Part 2 of COBS 19 Annex 3R where (2) applies and3 A, C or D offers a retail client the highest annual income;

   3. (c)

      Part 4 of COBS 19 Annex 3R where (2A) applies and B1 offers a retail client at least the annual income that the retail client has requested at the lowest purchase price; or3

   4. (d)

      Part 5 of COBS 19 Annex 3R where (2A) applies and A1 or C1 offers a retail client at least the annual income that the retail client has requested at the lowest purchase price;3

5. (4)

   where (2) applies and3 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;

6. (4A)

   where (2A) applies and B1 offers at least the requested annual income at the lowest purchase price:3

   1. (a)

      calculate as a single sum in pounds sterling the difference in purchase price between A1 and B1;3

   2. (b)

      include that amount in the relevant place in the template; and3

   3. (c)

      include a statement making it clear that the retail client could obtain at least the requested annual income at a lower purchase price by searching the open market for a pension annuity;3

7. (5)

   where (2) applies and3 A offers the highest annual income, include a statement that A will provide the retail client with the highest annual income; and

8. (5A)

   where (2A) applies and A1 offers at least the requested annual income at the lowest purchase price, include a statement that A1 will provide the retail client with at least the requested annual income at the lowest purchase price;3

9. (6)

   if applicable, where (2) applies and3 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.

10. (7)

    where (2A) applies and C1 will, or is likely to, provide at least the requested annual income at the lowest purchase price:3

    1. (a)

       calculate as a single sum in pounds sterling the difference in purchase price between A1 and C1;3

    2. (b)

       include the amount in (a) in the relevant place in the template; and3

    3. (c)

       warn the retail client that:3

       1. (i)

          the entitlement to C1 will be extinguished if the retail client accepts A1; and3

       2. (ii)

          accepting A1 will result in the retail client paying a higher purchase price than that payable if the retail client exercises their entitlement to C1; 3

11. (8)

    where (2A) applies and either A1 or B1 offers the retail client at least the requested annual income at the lowest purchase price, a firm must determine whether the retail client’s entitlement to a guaranteed annuity rate can be applied to offer a better value annuity compared to the lowest purchase price annuity on offer and, if so, warn the retail client accordingly.3

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 sum3 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 sum3 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 sum3, 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 firm4 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.4

   3
2. (2)

   A firm must take reasonable steps to obtain a retail client’s4consent referred to in paragraph (1)3.

   3
3. (3)

   Where a firm, having complied with (2), has been unable to obtain the client’s consent,4 this rule applies with the effect that:4

   1. (a)

      COBS 19.9.4R(7), COBS 19.9.7R and COBS 19.9.6AR(4)4 do not apply;

   2. (b)

      a firm must include information, as applicable,3 warning the retail client that:3

      1. (i)

         a higher annual income might be obtained; or3

      2. (ii)

         at least the requested annual income might be obtained for a lower purchase price;3

      by searching the open market for a pension annuity; and3

   3. (c)

      a firm must, as applicable,3 use the template in Part 3 or Part 63 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.