1 1

Introduction

Limitation on use

1.1

G

The suitability assessment toolkit reproduced at CONRED 4 Annex 20R (referred to in these instructions as the ‘BSPS DBAAT’) and instructions in this Annex are to be used only for the purpose of complying with the requirements under CONRED 4 to assess pension transfer advice provided to BSPS members during the relevant period. They should not be used for any other purpose.

1.2

G

Unless otherwise stated, nothing in CONRED 4 affects how the FCA DBAAT operates.

Definitions

1.3

R

In this section we use the following definitions:

(1)

‘assessor’ means the person filling in the BSPS DBAAT, either at the firm or on behalf of the firm;

(2)

‘available evidence’ means the information collected by the firm and held on the consumer file or information received from a consumer;

(3)

‘BSPS’ has the meaning in CONRED 4.1.1R(1);

(4)

‘BSPS2’ has the meaning in CONRED 4.1.1R(2);

(5)

‘BSPS DBAAT’ has the meaning in CONRED 4.1.1R(4);

(6)

‘Causation Section’ is the tab on the BSPS DBAAT Excel Spreadsheet that records whether the firm’s failure to comply with the suitability requirements is the effective cause of the consumer’s loss;

(7)

‘comparator scheme’ means, other than as provided by CONRED 4 Annex 21 13.1R(4):

(a)

(if the advice was given on or before 16 May 2017) BSPS;

(b)

(if the advice was given from 17 May 2017 to 11 October 2017) either or both of BSPS and PPF; and

(c)

(if the advice was given on or after 12 October 2017) BSPS2 and PPF;

(8)

‘FCA DBAAT’ has the meaning in CONRED 4.1.1R(11);

(9)

‘information requirements’ are the requirements in force during the relevant period and are:

(a)

COBS 9.2.1R(2) ;

(b)

COBS 9.2.2R ;

(c)

COBS 9.2.3R ;

(d)

COBS 9.2.6R ; and

(e)

COBS 19.1.2R ;

(10)

‘instructions’ means this Annex;

(11)

‘Information Section’ is the tab on the BSPS DBAAT Excel Spreadsheet that collects information about the firm’s compliance with the information requirements that is relevant to the assessment of suitability;

(12)

‘material information gap’ has the meaning in CONRED 4.1.1R(12);

(13)

‘NRD’ is the normal retirement date in the comparator scheme;

(14)

‘pension benefits’ has the meaning in CONRED 4.1.1R(13);

(15)

‘PPF’ means the Pension Protection Fund;

(16)

‘relevant period’ is defined at CONRED 4.1.1R(16);

(17)

‘scheme case’ is defined at CONRED 4.1.1(17);

(18)

‘suitability requirements’ are the requirements in force during the relevant period specified at CONRED 4 Annex 21R 7.1R and are:

(a)

COBS 9.2.1R(1) ; and

(b)

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

and that were in force during the relevant period and applicable to a scheme case;

(19)

‘Suitability Section’ is the tab on the BSPS DBAAT Excel Spreadsheet that records the assessment of the firm’s compliance with the suitability requirements;

(20)

‘transfer value’ is the cash equivalent transfer value or CETV;

(21)

‘transfer value analysis’ is the analysis a firm was required to carry out during the relevant period, in accordance with the requirements at COBS 19.1.2R; and

(22)

‘two-adviser model’ has the meaning in CONRED 4.1.1R(21).

2

Using the BSPS DBAAT

2.1

G

The BSPS DBAAT contains factors for the firm’s assessor to take into account to determine whether there has been a failure to comply with the suitability requirements in a scheme case. The instructions are addressed to the assessor carrying out the review.

2.2

R

The BSPS DBAAT is a Microsoft Excel workbook divided into 5 ‘sections’, using worksheet tabs, which must be completed in full except where indicated in these instructions.

2.3

R

Before completing the BSPS DBAAT, an assessor must familiarise themself with the features, benefits and risks of a pension transfer from BSPS, including the features, benefits and risks in general of a pension transfer that a reasonably competent firm should have identified, as illustrated in CONRED 4 Annex 22G at Table 1.

2.4

R

The assessor must answer the questions in the BSPS DBAAT and complete the assessment by reference to the available evidence, and where specified the information available to advisers during the relevant period listed in CONRED 4 Annex 22G at Tables 2 and 3.

2.5

R

All answers should be based on information obtained up until the date the firm gave the advice or arranged the pension transfer, unless otherwise stated.

2.6

G

When completing the BSPS DBAAT, an assessor should ensure that the information they enter, including, without limitation, all values, notes, additional comments, rationale and evidence, is sufficiently detailed for a third-party assessor to:

(1)

gain an accurate and complete overview of the relevant evidence on the consumer file; and

(2)

form a view without the need to refer to the relevant evidence as to whether the firm has collected the necessary information to assess suitability and, where applicable, complied with the suitability requirements.

2.7

G

The BSPS DBAAT uses colours to indicate whether fields have been completed. Blue indicates fields still to complete. Grey indicates fields that may not have to be completed, depending on the answer to a question.

2.8

G

The diagram at 2.9G explains the scheme steps in diagrammatic form, with reference to the relevant sections of the instructions and CONRED 4 rules.

2.9

G

The steps to complete a BSPS DBAAT are set out below.

3

Use of FCA DBAAT

3.1

G

If CONRED 4.3.2R(2) applies and the firm uses a non-BSPS DBAAT to complete the first step under CONRED 4.3.2R, it should have regard to the differences between the BSPS and non-BSPS DBAAT and refer to relevant sections of the instructions to identify whether their FCA DBAAT or assessment requires amendment. The material changes include:

(1)

In the Information Section:

(a)

Information Area 4 is not present in the BSPS DBAAT and the remaining Information Areas have been renumbered;

(b)

Information Area 7 in the BSPS DBAAT on the comparator scheme (area 8 in the non-BSPS DBAAT) has been significantly revised;

(c)

Information Area 9 in the BSPS DBAAT on the transfer analysis (area 10 in non-BSPS DBAT) has been significantly revised.

(2)

In the Suitability Section:

(a)

the addition of evidential provisions in respect of Examples 1 to 11;

(b)

new Example 11 has been inserted in the BSPS DBAAT;

(c)

Example 11 from the non-BSPS DBAAT becomes Example 12;

(d)

Example 12 from the non-BSPS DBAAT has been removed.

(3)

The Suitability Investment Advice, Disclosure and Insistent Client Sections have been removed.

4

General instructions

4.1

R

An assessor must complete a separate BSPS DBAAT for each consumer and:

(1)

if the consumer has more than one period of service in the BSPS, complete a separate BSPS DBAAT for each period of service;

(2)

if the consumer received connected advice on pension transfers from a non-BSPS ceding arrangement within 6 months of the BSPS advice, have regard to how the connected advice factors into the advice to transfer the consumer’s BSPS scheme.

4.2

G

For the purpose of 4.1R, advice on a pension transfer from a non-BSPS ceding arrangement is likely to be connected with advice to transfer from BSPS if the advice on the other scheme is integral to the consumer’s decision to transfer from the BSPS.

4.3

R

Where the consumer is married or has a partner, complete the BSPS DBAAT on a joint life basis unless the consumer has instructed the firm to advise on a single life basis and their spouse or partner has confirmed that they have sufficient retirement provision of their own.

4.4

R

Where it is necessary to use multiple BSPS DBAATs:

(1)

use the first BSPS DBAAT for the ceding arrangement offering the largest transfer value;

(2)

label the completed BSPS DBAATs with the consumer’s name and the number in sequence order that the BSPS DBAATs were completed;

(3)

re-use the relevant information from the first BSPS DBAAT in any connected BSPS DBAATs and ensure that the following sections are completed using the available evidence about the consumer and the ceding arrangement the BSPS DBAAT relates to:

(a)

case details;

(b)

Information Area 1 – ‘has the firm obtained the essential facts about the consumer?’;

(c)

Information Area 7 – ‘has the firm obtained the necessary information about the consumer’s pension benefits?’;

(d)

Information Area 8 – ‘has the firm obtained necessary information regarding the proposed arrangement?’; and

(e)

Information Area 9 – ‘has the firm carried out the transfer analysis?’; and

(4)

clearly cross refer between the BSPS DBAATs.

5

Information Section

5.1

R

An assessor must take these 6 actions to complete the Information Section:

(1)

Enter ‘case details’ of the file review and assessor alongside details of the firm, adviser and pension transfer specialist (as recorded on the Financial Services Register) and the charging basis for the advice.

(2)

Record the relevant information from the available evidence under each of the 9 Information Areas, following the instructions under each area heading.

(3)

For each Information Area, decide whether the firm has complied with the information requirements and obtained the necessary information to assess suitability and answer ‘yes’ or ‘no’ to each ‘area question’.

(4)

Depending on the answers to questions in Information Areas 1 to 9, the BSPS DBAAT will give the firm’s information collection 1 of 3 indicative ratings. To complete this action, refer to the instructions at CONRED 4 Annex 21R from 5.3R to 5.7R and select from the drop-down list one of the following ‘assessor’ ratings:

(a)

‘Compliant – Proceed to suitability assessment’ – the firm has complied with the information requirements and collected the necessary information to assess suitability. Proceed to the Suitability Section of the BSPS DBAAT.

(b)

‘Non-compliant – Material Information Gap’ – the firm has not complied with the information requirements and so it is not possible to assess suitability. Complete action (5) before finalising this rating.

(c)

‘Non-compliant - However enough information to assess suitability’ – the firm has not complied with the information requirements and has taken the steps at CONRED 4.3.5R but there is sufficient information to conclude that the advice was likely to be unsuitable. Proceed to the Suitability Section of the BSPS DBAAT.

(5)

If 4(b) applies, follow the steps in CONRED 4.3.5R to obtain the missing information, then carry out actions 5.1R(2) to (4) again and finalise the assessor rating.

(6)

Explain, with reference to the consumer file, the reasons for the rating and any actions taken to obtain missing information.

5.2

G

The overall assessment part of the Information Section has 2 boxes:

(1)

Tool rating: the BSPS DBAAT’s indicative rating of whether the firm has obtained the ‘necessary information’ to make a personal recommendation based on the answers to Information Area questions 1 to 9 in the Information Section.

(2)

Assessor rating: this is the assessor’s own informed assessment in the round of whether the firm has obtained the necessary information to make a personal recommendation. The assessor can come to a different rating.

5.3

R

To complete the overall assessment of whether the firm has collected the necessary information at 5.1R(4), take the following steps. Using the available evidence and with reference to the information requirements:

(1)

review the information recorded and the ratings in each Information Area of the BSPS DBAAT;

(2)

answer ‘yes’ or ‘no’ depending on whether the firm has complied with the information requirements; and

(3)

insert commentary on whether or not the firm has complied with the information requirements.

5.4

R

If the answer to all of the Information Area questions 1 to 9 is ‘yes’, select ‘compliant – proceed to suitability section’ and proceed to the Suitability Section.

5.5

R

If one or more of the answers to the Information Area questions 1 to 9 is ‘no’, decide, with reference to the information requirements, whether there is nonetheless sufficient information to assess the suitability of the recommendation and:

(1)

if there is sufficient information, select ‘non-compliant however enough information to assess suitability’ and make a record of the reasons for the assessment in accordance with CONRED 4 Annex 21R 5.3(3)R; or

(2)

if there is not sufficient information, select ‘Non-compliant - Material Information Gap’ and take the second step at CONRED 4.3.5R to obtain the missing information then proceed to 5.1R(2).

5.6

G

There may be sufficient information to assess the suitability of the advice in circumstances where the firm has been unable to obtain the necessary information in one or more Information Area. For example:

(1)

where the consumer was in serious financial difficulty and had a proven urgent need for the transferred funds and the firm was unable to obtain the necessary information in Information Area 1, 3, 4 or 5. The types of circumstances in which a consumer is likely to be able to show they are experiencing serious financial difficulty include where continuing to pay domestic bills and credit commitments is a heavy burden on the consumer and the consumer has missed payments for any credit commitments and/or any domestic bills in any 3 or more of the last 6 months; or

(2)

where the consumer was in ill health, with death expected imminently, and wanted to transfer in order to pass the value of their pension benefits to beneficiaries and the firm was unable to obtain the necessary information in Information Area 3, 4, 5, or 6.

5.7

R

If, after taking the steps at CONRED 4.3.5R, and having regard to the guidance in CONRED 4.3.12G to CONRED 4.3.13G, the conclusion is that the firm has not obtained the necessary information and it is not possible to assess the suitability of the transfer (such that the ‘assessor rating’ is ‘Non-compliant – Material Information Gap’), record:

(1)

a brief summary of the missing information and its significance to the suitability assessment (for example, ‘the firm has not recorded any consumer objectives and so it cannot form a view on whether the transfer meets the consumer’s investment objectives’); and

(2)

that the firm has not complied with the information requirements but it is not possible to assess whether the firm has complied with the suitability requirements; and

(3)

where the failure relates to the transfer analysis, that the firm has not carried out the required transfer analysis in accordance with COBS 19.1.2R.

6

Instructions for Information Areas

6.1

G

This section sets out how to assess whether the firm has collected the necessary information across 9 Information Areas to make a personal recommendation. It is also to be used to determine whether the assessor has sufficient information to assess suitability.

Information Area 1: has the firm obtained the essential facts about the consumer?

6.2

R

Refer to the available evidence and take the following steps:

(1)

Select ‘yes’ or ‘no’ depending on whether the firm has obtained the essential facts about the consumer.

(2)

Enter the information about the consumer and (if relevant) their spouse or partner from the available evidence.

(3)

Record any information inferred from the available evidence in the comment box.

6.3

R

Complete the BSPS DBAAT as follows:

(1)

Where advice is on a joint life basis, complete the essential information for the consumer and their partner.

(2)

If the consumer’s tax rate is not recorded, it can be inferred from the consumer’s salary at the date of the advice.

(3)

Record in the additional comments box whether the consumer intends to transfer the pension to a Qualifying Recognised Overseas Pension Scheme. Record the relevant currency and overseas tax rates.

(4)

Where health status is not recorded, absent any evidence suggesting otherwise, infer that the consumer is in good health.

(5)

Record details about any dependants and the consumer’s responsibility for them.

(6)

Include details about whether the consumer had characteristics of vulnerability. This means someone who, due to their personal circumstances, is especially susceptible to detriment.

Information Area 2: has the firm obtained the necessary information regarding the consumer’s objectives?

6.4

R

Take the following steps to complete this area. Using the available evidence, identify the information recorded on the consumer’s objectives and:

(1)

if no objectives have been recorded, answer ‘no’ to this question; or

(2)

if objectives are recorded, answer ‘yes’; and

(3)

complete the BSPS DBAAT by recording the consumer’s objectives, using the same wording and ranking or prioritisation as the firm and include any observations in the additional comments box.

6.5

G

For each objective identified, the BSPS DBAAT will indicate fields where further information can be recorded, in the right-hand columns, relating to:

(1)

the amount wanted (to achieve the objective); and

(2)

the date the amount is needed.

Information Area 3: has the firm obtained the necessary information regarding the consumer’s preferences regarding risk taking and their risk profile?

6.6

R

Take the following steps to complete this area. Using the available evidence:

(1)

select ‘yes’ or ‘no’ depending on whether the firm has obtained the necessary information about the consumer’s preferences regarding risk taking and their risk profile;

(2)

record in the boxes provided the firm’s description of the consumer’s:

(a)

attitude to investment risk;

(b)

attitude to the risks associated with a pension transfer, including the loss of safeguarded benefits;

(c)

capacity for loss (in general); and

(d)

capacity for loss of safeguarded benefits;

(3)

select ‘yes’ or ‘no’ depending on whether the firm used a tool for any of the above assessments. If the firm used a tool record the name of that tool in the ‘name of tool’ box; and

(4)

record in the ‘comments’ box any additional comments or observations on the firm’s approach to obtaining this information.

6.7

G

‘Capacity for loss’ refers to the consumer’s ability to absorb falls in the value of their investment. If any loss of capital would have a materially detrimental effect on their standard of living, this should be taken into account in assessing the risk that they are able to take.

6.8

G

COBS 9.2.2R(2) requires a firm to obtain, where relevant, information about the consumer’s (a) preferences regarding risk taking and (b) risk profile. COBS 19.1.7G and COBS 19.1.7AG contain guidance to which a firm giving pension transfer advice should have had regard when identifying the consumer’s risk preferences and risk profile.

6.9

G

A firm advising a consumer during the relevant period should have obtained sufficient information to enable it to consider the consumer’s attitude to the investment risks specific to a pension transfer, including:

(1)

the rate of growth that would have to be achieved to replicate scheme benefits in the proposed arrangement (COBS 19.1.7G and COBS 19.1.7AG);

(2)

the extent to which benefits may fall short of replicating those in the defined benefits pension scheme or other scheme with safeguarded benefits (COBS 19.1.7AG(1));

(3)

the uncertainty of the level of benefit that can be obtained from the purchase of a future pension annuity and the investment risk to which the retail consumer is exposed until a pension annuity is purchased with the proceeds of the proposed personal pension scheme or stakeholder pension scheme (COBS 19.1.7AG(2));

(4)

the potential lack of availability of pension annuity types (for instance, pension annuity increases linked to different indices) to replicate the benefits being given up in the defined benefits pension scheme as set out in COBS 19.1.7AG(1)); and

(5)

the risks relevant to a pension transfer from the BSPS to a scheme with flexible benefits listed at CONRED 4 Annex 22G at Table 1.

Information Area 4: has the firm obtained the necessary information regarding the consumer’s knowledge and experience?

6.10

R

Take the following steps to complete this area. Using the available evidence:

(1)

identify the information relevant to the consumer’s knowledge and experience of defined benefits pension schemes and pension schemes with flexible benefits, including:

(a)

the types of service, transaction and investments with which the consumer is familiar;

(b)

the nature, volume and frequency of the consumer’s transactions in investments and the period over which they have been carried out; and

(c)

the level of education, profession or relevant former profession of the consumer;

(2)

answer ‘yes’ or ‘no’ depending on whether the firm has obtained the necessary information about the consumer’s knowledge and experience; and

(3)

record the consumer’s knowledge and experience relevant to pension transfers in the ‘additional comments’ box.

Information Area 5: has the firm obtained the necessary information regarding the consumer’s estimated expenditure?

6.11

R

Take the following steps to complete this area. Using the available evidence:

(1)

identify the information relevant to the consumer’s financial situation;

(2)

answer ‘yes’ or ‘no’ depending on whether the firm has obtained the necessary information regarding the consumer’s estimated expenditure;

(3)

record relevant information under the headings ‘current regular’ and ‘retirement regular’, including the consumer’s expenditure on:

(a)

basic cost of living;

(b)

lifestyle expenditure; and

(c)

discretionary expenditure/savings; and

(4)

record any additional comments about the steps the firm has taken to obtain this information, including any inferences made about current or retirement regular expenditure.

6.12

E

Answer ‘yes’ to the question at 6.11R(2) if the firm has taken reasonable steps to obtain the information under the headings ‘current regular’ and ‘retirement regular expenditure’ but there is information missing and:

(1)

the consumer is 5 years or less from their intended retirement age and taking account their personal circumstances, it is possible to use the current regular expenditure as a proxy for retirement regular expenditure; or

(2)

it is possible to use the current regular expenditure, with consumer-specific adjustments, as a proxy for retirement regular expenditure.

6.13

G

The BSPS DBAAT records the necessary information about the consumer’s estimated expenditure throughout retirement in 3 categories:

(1)

Basic cost of living: this includes all non-discretionary expenditure. For example, utility bills, council tax, food and any outstanding accommodation payments (such as mortgages and rents) or care expenses if these are ongoing.

(2)

Lifestyle expenditure: this is expenditure to support the consumer’s lifestyle. For example, consumers may wish to spend money on entertainment, holidays or home help.

(3)

Discretionary expenditure/savings: this is expenditure which is discretionary and could easily be cut back by the consumer at any time. It may include current savings into pensions or investments which may well cease upon retirement. This may also be labelled as ‘disposable income’.

6.14

G

If the firm has estimated the consumer’s expenditure in retirement, consider whether it took reasonable steps to do so. Reasonable steps might include:

(1)

gathering the necessary information on the consumer’s current level of expenditure and liabilities;

(2)

considering how the consumer’s personal circumstances and lifestyle (for example, living arrangements, mortgage position, provision of financial support for dependents, recreational activities, and travel) are likely to change upon retirement, and how this might affect future expenditure and liabilities;

(3)

challenging low estimates of expenditure by using comparative figures derived from (for example) the firm’s experience with other consumers in similar situations, statistical averages, actuarial data and other reliable sources (though it is unlikely that the use of generic data would by itself satisfy the requirement to take reasonable steps);

(4)

where a firm has used a cashflow modelling tool to estimate the consumer’s level of expenditure in retirement as part of demonstrating how reliant the consumer is on this income in retirement;

(5)

challenging inconsistent information, for example, where the consumer suggests they have a high level of available disposable income but low levels of savings, suggesting that their lifestyle expenditure may be more than they represent.

Information Area 6: has the firm obtained the necessary information regarding the consumer’s financial situation?

6.15

R

To complete this area, take the following steps. Using the available evidence:

(1)

identify the information relevant to the consumer’s financial situation;

(2)

answer ‘yes’ or ‘no’ depending on whether the firm has captured the necessary information regarding the consumer’s financial situation; and

(3)

record the relevant information for the consumer and (for joint advice) their spouse or partner under the headings:

(a)

consumer’s current income;

(b)

income sources in retirement (excluding income from the comparator scheme, which is captured in Information Area 7);

(c)

other assets (excluding the consumer’s main residence); and

(d)

liabilities.

6.16

G

The consumer’s main residence should not usually be counted as an asset which can be used as an income source in retirement. The consumer’s main residence typically provides secure accommodation throughout retirement. Where the firm has a reasonable basis for treating the main residence as an asset, for example because the consumer has a legitimate plan to downsize and the firm has a contemporaneous record of these plans, include the value of the main residence in the ‘other assets’ box.

6.17

G

If the consumer file is incomplete or it is unclear whether the firm has collected the necessary information on the consumer’s financial situation, it may be possible to estimate the consumer’s income or assets from other information on the consumer file. For example:

(1)

if the ‘other assets’ section in a fact-find is blank, and there is evidence that the consumer’s income does not exceed or marginally exceeds their expenditure, it may be reasonable to assume that the consumer has no other assets;

(2)

if the ‘state pension’ section of the fact-find is blank:

(a)

where there is evidence of the consumer’s employment history on file or length of service at the scheme employer, it may be possible to estimate entitlement to a state pension;

(b)

where a consumer expects to continue in employment until retirement, it is reasonable to infer, unless there is specific information to the contrary, that the consumer would continue to accrue state pension entitlement throughout that period;

(3)

if details on the ‘spouse’s/partner’s’ assets are missing, it may be possible to infer information based on the spouse’s circumstances. For example:

(a)

if the spouse or partner was employed at the time of the advice, it is likely they will have some eligibility for state pension;

(b)

if the spouse or partner was not employed, this may indicate that they have modest assets, in the absence of evidence suggesting otherwise;

(4)

if the consumer or their spouse or partner held other defined benefits of material value, where a benefits statement was delayed, these benefits could be reasonably estimated by contemporaneous records of their salary, length of service and publicly available scheme details;

(5)

if there is an indication that the spouse or partner has a defined contribution pension scheme or other assets but the value is not quantified, where it has already been demonstrated that the consumer and spouse or partner have sufficient other guaranteed pension provision to cover their expenditure in retirement, the value of this scheme may not be necessary to assess the suitability of the recommendation to transfer.

6.18

G

(1)

If the available evidence suggests that the consumer has a significant amount of disposable income, but the firm has obtained limited or no information on them, it is more likely than not that the firm has not obtained the necessary information.

(2)

If the available evidence demonstrates that the consumer has other assets or liabilities, but the firm has obtained limited or no information on them, it is likely that the firm has not obtained the necessary information.

6.19

G

If the consumer was concerned about the security of their employment with Tata Steel Ltd and the security of income over the remaining term to retirement, this should have been recorded on the consumer file. The firm should have inquired as to whether redundancy or loss of income was imminent and was likely to cause significant financial hardship.

Information Area 7: has the firm obtained the necessary information regarding the consumer’s pension benefits?

6.20

R

To complete this area, take the following steps. Using the available evidence:

(1)

(where the firm has advised on multiple periods of service in the BSPS) record under the heading ‘number of schemes’:

(a)

the number of periods of service in the BSPS advised on;

(b)

whether the outcome was to transfer all periods of service;

(2)

record the relevant information for the consumer’s BSPS membership, including:

(a)

the statement of benefits and date obtained;

(b)

whether the Time to Choose pack was obtained;

(c)

what the consumer’s Time to Choose election was (BSPS2 or PPF);

(d)

the date of the CETV and the CETV amount;

(e)

the dates they joined and left the BSPS (the BSPS DBAAT will then automatically calculate the length of service);

(f)

their retirement date (NRD) in the BSPS;

(g)

BSPS minimum retirement age;

(h)

whether the client opted out of the scheme in advance of its closure and the date of any opt-out;

(i)

any additional comments;

(3)

answer ‘yes’ or ‘no’ depending on whether the firm has captured the necessary information regarding the consumer’s BSPS membership, Time to Choose election, and benefits; and

(4)

record any comments relevant to the consumer’s CETV and the comparator scheme(s) in the ‘additional comments’ box.

Information Area 8: has the firm obtained the necessary information regarding the proposed arrangement?

6.21

R

To complete this area, take the following steps. Using the available evidence:

(1)

identify information about the proposed arrangement;

(2)

answer ‘yes’ or ‘no’ depending on whether the firm has captured the necessary information regarding the proposed arrangement;

(3)

if the firm has not identified a proposed arrangement, answer ‘no’ to this question;

(4)

record the relevant information under the headings ‘proposed arrangement’; and

(5)

in the ‘additional comments’ box, record any relevant information about product and adviser costs and charges.

Information Area 9: has the firm carried out the transfer analysis?

6.22

R

To complete this area, take the following steps. For the relevant comparator scheme(s), using the available evidence and with reference to the firm’s transfer value analysis:

(1)

record the consumer’s preferred retirement age;

(2)

record the relevant comparator schemes(s);

(3)

record relevant information under the heading ‘comparison of benefits’ from the comparison carried out by the firm to comply with COBS 19.1.2R; and

(4)

record relevant information under the heading ‘critical yield’, including:

(a)

the critical yield on a joint and single basis to the consumer’s NRD and preferred retirement date; and

(b)

identify which critical yield is more relevant (joint or single) by selecting the critical yield which corresponds to the consumer’s intentions; and

(i)

if the evidence on file demonstrates that the consumer does not intend to take any pension commencement lump sum, record the critical yield for a full pension and make a note in the ‘additional comments’ box; and/or

(ii)

if the consumer is single and there is nothing on file to suggest that this is likely to change, then insert the critical yield calculated on a single life basis and make a note in the ‘additional comments’ box; and

(c)

record the critical yield to match the comparator scheme(s) at the consumer’s preferred retirement date; and

(5)

record commentary on any other comparison of benefits, for example on cashflow modelling or analysis of how long funds are likely to last in the proposed arrangement.

6.23

G

The BSPS DBAAT records the necessary information about the consumer’s benefits at the comparator scheme(s) and their preferred retirement date in 3 categories:

(1)

Pension (no commutation) per annum (p.a.): the income benefits the consumer would receive at NRD if they were to take all their benefits as income only.

(2)

Pension (full commutation) per annum (p.a.): the (reduced) income benefits the consumer would receive at NRD if they chose to maximise their pension commencement lump sum by commuting income benefits up to the full permitted limit.

(3)

Pension commencement lump sum (PCLS): the lump sum benefits the consumer would receive at their NRD if they chose to maximise their PCLS by commuting income benefits up to the full permitted limit.

6.24

G

To assess whether the firm has carried out the transfer analysis, identify whether:

(1)

(with reference to the assumptions in COBS 19.1.4R to COBS 19.1.4BR and taking into account the dates these rules were in force) the analysis has been undertaken on the correct assumptions, including whether, if more cautious assumptions have been used, those assumptions are reasonable; and

(2)

the analysis is consistent with product-related documents such as the key features illustration.

7

Suitability requirements

7.1

R

The following requirements are specified as ‘suitability requirements’:

(1)

COBS 9.2.1R(1) , which requires a firm to take reasonable steps to ensure that a personal recommendation is suitable for its client; and

(2)

the common law duty in contract or tort to exercise reasonable skill and care in advising the consumer on pension transfers.

7.2

G

The contract between the firm and the consumer may have included a specific term providing that the firm would exercise reasonable skill and care in advising the consumer on investments. If it did not do so, such a duty is likely to have been implied into the contract.

7.3

G

The standard of care under the FCArules and the common law is that of a reasonably competent firm carrying on a similar business to that of the firm assessed.

7.4

G

The suitability requirements arise from FCArules and the common law. For the requirements specified, the standards required of the firm are materially similar, regardless of whether their origin is a rule or the common law.

7.5

G

COBS 9.2.1R(2) , COBS 9.2.2R and COBS 9.2.3R indicate matters of which a firm must take account when assessing whether the firm failed to comply with the suitability requirements. In summary, these are the consumer’s:

(1)

investment objectives;

(2)

financial situation; and

(3)

knowledge and experience in the investment field relevant to the specific type of designated investment or service.

7.6

G

The starting point for pension transfer advice is the guidance in COBS 19.1.6G that a firm should only consider a transfer, conversion or opt-out to be suitable if it can clearly demonstrate, on contemporary evidence, that the transfer, conversion or opt-out is in the client’s best interests.

8

Assessing scheme cases for compliance with suitability requirements

8.1

R

(1)

The ‘Suitability Section’ in the BSPS DBAAT and associated additional provisions in these instructions contain ‘examples’ which tend to show failure to comply or compliance with the suitability requirements specified at 7.1R.

(2)

The examples are indicators that advice may be unsuitable, and an overall view of suitability or unsuitability must be reached taking account of all of the circumstances.

8.2

R

For each scheme case, the assessor must:

(1)

fairly consider and give appropriate weight to all available evidence of the firm’s compliance or non-compliance with applicable suitability requirements; and

(2)

decide, including with reference to the examples in the BSPS DBAAT, whether it is more likely than not that the firm complied or failed to comply with the suitability requirements.

8.3

R

In considering the available evidence, the assessor must:

(1)

not assume that a firm complied with a suitability requirement solely on the basis that:

(a)

the consumer signed documentation that records their understanding or agreement to matters set out in that documentation;

(b)

the advice was given to a consumer who had transferred from a defined benefit occupational pension scheme in the past;

(2)

give more weight to evidence of the consumer’s particular circumstances or the circumstances at the time than to general evidence of the selling practices of the firm or its advisers at the relevant time;

(3)

determine that an example is present on the ‘balance of probabilities’ when it is more likely than not to have occurred.

8.4

R

When assessing whether a firm complied with the suitability requirements, the assessor must take into account the following:

(1)

the consumer’s investment objectives, including their willingness to bear the risks associated with transfer (transfer risk);

(2)

the consumer’s financial situation, including their ability, financially, to bear the risks associated with the recommended transfer consistent with their investment objectives;

(3)

the consumer’s ability, in the light of the following, to understand the risks associated with a pension transfer:

(a)

the experience and knowledge of the consumer relevant to a pension transfer; and

(b)

any communications received from the comparator scheme(s) regarding the pension transfer.

8.5

R

When assessing the reasonableness of a firm’s conduct, the assessor must:

(1)

assess the firm’s conduct against what was reasonable at the time when the firm gave the advice; and

(2)

have regard to the information available at various times, including the information listed at Table 3 of CONRED 4 Annex 22G; and

(3)

conclude that the conduct of the firm assessed was reasonable only where that firm displayed the degree of skill, care and diligence that would at that time have been exercised in the ordinary and proper course of a similar business to that of the firm.

8.6

G

Where the advice is given using a two-adviser model and the advisers are employed by different firms:

(1)

identify which firm is responsible for the pension transfer advice and which firm is responsible for the investment advice;

(2)

take into account that it will generally be reasonable for the firm providing pension transfer advice to rely on information provided to it in writing by the firm providing investment advice, unless it is aware or ought reasonably to be aware of any fact that would give reasonable grounds to question the accuracy of that information (COBS 2.4.6R and COBS 2.4.8G).

9

Completing the Suitability Section of the BSPS DBAAT

9.1

G

The Suitability Section is used to record the assessment of whether the firm has complied with the suitability requirements.

9.2

R

The assessor must take the following steps to complete the Suitability Section:

(1)

review the available evidence and the information recorded in the Information Section of the BSPS DBAAT;

(2)

take the steps in Section 10 of this Annex to determine whether the available evidence shows overall that an example is present, or not;

(3)

indicate whether any or all of Examples (1) to (12) are present, or not, by selecting ‘yes’ or ‘no’;

(4)

conclude, taking into account all of the available evidence and the presence of any examples indicating unsuitable advice, whether the firm complied with the suitability requirements; and

(5)

comment on whether or not the firm complied with the suitability requirements, with reference to the example or examples that support their conclusion.

9.3

G

If an example is present, this will tend to indicate the firm’s potential non-compliance with the suitability requirements. There may be other factors which mean that the firm has, despite the presence of the example, complied, or not complied, with the suitability requirements. For example:

(1)

if Example 9 is present because the transfer analysis does not support a recommendation to transfer, but the recommendation is nonetheless suitable because the consumer has little or no reliance on the transfer value from the comparator scheme and no requirement to replicate the amount or shape of the comparator scheme benefits; or

(2)

if Example 1 is present but the recommendation is nonetheless suitable because the consumer is in serious ill health with a shortened life expectancy and:

(a)

the consumer’s objective is to transfer to preserve the value of their scheme benefits for beneficiaries; and

(b)

the beneficiaries would be financially better off if the funds were transferred to a scheme with flexible benefits rather than remaining in the comparator scheme(s).

9.4

G

The BSPS DBAAT rating will indicate a conclusion of ‘Compliant’ or ‘Non-Compliant’ based on the answer to the example questions in the BSPS DBAAT. The BSPS DBAAT rating is not definitive of suitability; it is an indication of the firm’s compliance with the suitability requirements.

10

Examples that indicate unsuitable advice

10.1

G

This section contains rules, evidential provisions, and guidance for determining whether the available evidence shows overall that an example is present, or not.

Example 1: the consumer is, or will be, reliant on income from the comparator scheme

10.2

R

Take the following steps to determine whether this example is present:

(1)

Review the available evidence in Information Areas 5, 6, 7, 8 and 9 of the Information Section.

(2)

Using the available evidence, identify the amount the consumer needs to meet anticipated expenses and personal outlays throughout retirement, taking into account:

(a)

any forecast expenditure plans that the firm has identified with the consumer;

(b)

any intention or preference for early retirement;

(c)

any existing liabilities that the consumer continues to pay off (for example, their mortgage) and their plans for clearing these debts;

(d)

whether the forecast expenditure appears reasonable in light of their current expenditure patterns and plans to pay off liabilities; and

(e)

where the firm has not collected a forecast expenditure plan, an estimate (if possible) of the consumer’s likely expenditure patterns based on the information on file.

(3)

Using the available evidence, identify the anticipated income from the comparator scheme at NRD or the consumer’s preferred retirement date, whichever is earlier. Where the consumer wishes to retire early, assess whether the consumer can afford to retire early or whether this will give rise to or increase the risk of the consumer running out of income in retirement.

(4)

Assess how the income from the comparator scheme, including inflationary increases, contributes to the consumer’s income needs in (2).

(5)

Assess whether the consumer can produce the same or similar contribution towards their planned expenditure needs throughout retirement (using a range of possible life expectancies) as identified in (2) using the available assets, including from:

(a)

contribution-based pension schemes, including the proposed arrangement, taking into account the impact of the following factors on the sustainability of these schemes throughout retirement:

(i)

the frequency of withdrawals (ad hoc or regular payments);

(ii)

the timing of withdrawals (monthly, yearly);

(iii)

the amount of the withdrawals; and

(iv)

investment performance;

(b)

savings and investments;

(c)

other pension schemes with safeguarded benefits;

(d)

(if the consumer is eligible) state pension;

(e)

(if the consumer is managing income on a joint basis) the spouse’s/partner’s other assets, pensions and entitlement to the state pension, and how this contributes to their total household income.

(6)

Using the assessments in 10.2R(4)-(5) decide (yes or no) whether:

(a)

the consumer can produce the same or similar contribution towards their income needs, as identified in 10.2R(2), from the proposed arrangement; and

(b)

the consumer has the requisite capacity for loss, taking into account the impact of the factors considered at 10.2R(5)(a) on the sustainability of the proposed arrangement.

10.3

E

(1)

If the answer to 10.2R(6)(a) and (b) is ‘yes’, conclude that the consumer is not likely to be reliant on income from the comparator scheme.

(2)

If the answer to either 10.2(6)(a) or (b) is ‘no’, conclude that the consumer is likely to be reliant on income from the comparator scheme.

(3)

If the firm has not obtained the necessary information in all of the Information Areas 5, 6 and 7 of the Information Section and so it is not possible to carry out the steps in 10.2R(1) to (6), conclude that the firm has not demonstrated that it has a reasonable basis for believing that the consumer is able to bear the risk of the pension transfer to achieve their objective.

Example 2: the aim of the transfer is to pass the value of the pension to beneficiaries on the member’s death, but the firm has not demonstrated that the consumer can bear the risk of the transfer that would be needed to achieve this objective

10.4

R

Refer to Information Area 2 of the Information Section:

(1)

if the consumer has a priority objective to pass the value of the pension to beneficiaries on their death, take the steps in 10.5R; or

(2)

if the consumer does not have this priority objective answer ‘no’ to this question and proceed to Example 3.

10.5

R

Take the following steps to determine whether this example is present:

(1)

Review the available evidence in Information Areas 2, 5, 6 and 7 of the Information Section.

(2)

Refer to Tables 1 and 2 in CONRED 4 Annex 22G and the available evidence to identify what death benefits were likely to be available for beneficiaries on the member’s death:

(a)

(in all cases) in the proposed arrangement having regard to the way the consumer is likely to access their pension scheme throughout retirement; and

(b)

in the comparator scheme.

(3)

Identify whether there was an alternative way to meet the consumer’s objective without giving up comparator scheme benefits, including:

(a)

level term assurance for the required sum; or

(b)

decreasing term assurance for an appropriate term; or

(c)

using available death in service cover.

(4)

Decide whether the firm has a reasonable basis for believing that:

(a)

the recommendation to transfer in order to pass the value of the pension to beneficiaries on the member’s death meets the consumer’s investment objectives; and

(b)

the consumer is able financially to bear any transfer-related risks consistent with their investment objectives.

10.6

E

Answer ‘yes’ to this question when the available evidence demonstrates that:

(1)

the consumer did not have the requisite capacity for loss because they were not able to forego comparator scheme benefits to achieve this objective; and/or

(2)

a lower risk suitable alternative was available to achieve this objective; and/or

(3)

it was likely that the consumer would exhaust their pension savings during their lifetime (having regard to how the consumer will access their pension savings and the factors listed at 10.2R(5) above) and so there will be minimal death benefits available; and/or

(4)

the firm has not obtained the necessary information in both of the Information Areas 5 and 6 of the Information Section and so it is not possible to complete the assessment in 10.4R because the firm has not demonstrated that it has a reasonable basis for believing that the consumer is able to bear the risk of the pension transfer to achieve this objective; and/or

(5)

the firm has not obtained the necessary information in Area 2 of the Information Section and so it is not possible to understand the consumer’s rationale for pursuing this objective.

Example 3: the aim of the transfer is to access income-related benefits flexibly but the firm has not demonstrated that the consumer can bear the risk of the transfer that would be needed to achieve this objective

10.7

R

Refer to the available evidence in Information Area 2 of the Information Section:

(1)

if the consumer has a priority objective to access income-related benefits flexibly or to take control of their benefits, take the steps in 10.8R; or

(2)

if the consumer does not have this priority objective, answer ‘no’ to this question and proceed to Example 4.

10.8

R

Take the following steps to determine whether this example is present:

(1)

Review the available evidence in Information Areas 2, 5 and 6 of the Information Section.

(2)

Identify why the consumer requires flexible access to or control over their income-related benefits and how the features of the proposed arrangement meet their objective(s).

(3)

Identify whether any alternatives are available to meet the consumer’s objective.

(4)

Decide whether the firm has a reasonable basis for believing that the recommendation to transfer to access income-related benefits flexibly:

(a)

meets the consumer’s investment objectives; and

(b)

the consumer is able financially to bear any related risks consistent with their investment objectives.

10.9

E

Answer ‘yes’ to this question when the available evidence demonstrates that:

(1)

the consumer does not have the requisite capacity for loss because they were not able to forego scheme benefits to achieve this objective; and/or

(2)

there is an alternative way for the consumer to meet their objectives using other assets instead of transferring their BSPS scheme; and/or

(3)

the firm has not collected the necessary information in both of the Information Areas 5 and 6 of the Information Section and so it is not possible to complete the assessment in 10.8R because the firm has not demonstrated that it has a reasonable basis for believing that the consumer is able to bear the risk of the pension transfer to achieve this objective; and/or

(4)

the firm has not collected the necessary information in Information Area 2 of the Information Section and so it is not possible to understand the consumer’s rationale for pursing this objective.

10.10

G

(1)

The objective may be recorded as ‘flexibility’ or ‘control’ without further explanation. It is up to the firm to demonstrate what is meant by ‘flexibility’ or ‘control’ with reference to the consumer’s circumstances and how the recommendation meets the consumer’s objectives and is suitable for their financial situation. The following examples may demonstrate a need for flexibility:

(a)

if the consumer wishes to retire early and would like to access a higher amount of income in the short term in order to bridge an income gap until other guaranteed income commences, such as state pension;

(b)

if the consumer is in serious financial difficulty or facing financial hardship and needs to pay off or reduce debt prior to its planned redemption date, and the pension commencement lump sum from the comparator scheme(s) would be insufficient to meet this objective. The types of circumstances in which a consumer is likely to be able to show they are experiencing serious financial difficulty include where continuing to pay domestic bills and credit commitments is a heavy burden on the consumer and the consumer has missed payments for any credit commitments and/or any domestic bills in any 3 or more of the last 6 calendar months;

(c)

the consumer intends to reduce their working hours or take alternative work which may produce a lower income, prior to retiring fully, and it can be demonstrated that the transfer value is of sufficient value to support this objective without the risk of running out of money in the consumer’s lifetime.

(2)

A consumer may have a strong desire to transfer to obtain flexibility and control where they have real or perceived concerns regarding the financial viability in the scheme. The circumstances of the BSPS restructuring may have encouraged a greater than usual proportion of members to seriously consider the option of transferring out, which may in turn have led to an increased occurrence of consumers expressing a strong desire to transfer. However, this does not absolve the firm from its responsibility to only recommend a transfer if it can demonstrate that it is suitable.

Example 4: the aim of the transfer is to maximise PCLS but the firm has not demonstrated that the consumer can bear the risk of the transfer that would be needed to achieve this objective

10.11

R

Refer to the available evidence in Information Area 2 of the Information Section:

(1)

if the consumer has a priority objective(s) to maximise their pension commencement lump sum (PCLS), take the steps in 10.12R; or

(2)

if the consumer does not have this priority objective, answer ‘no’ to this question and proceed to Example 5.

10.12

R

Take the following steps to determine whether this example is present:

(1)

Refer to the available evidence in Information Areas 2, 5 and 6 of the Information Section on the consumer’s objectives and financial situation.

(2)

Identify the PCLS option in the relevant comparator scheme(s).

(3)

Identify why the consumer wants to access their PCLS.

(4)

Identify whether the consumer needs to transfer to the proposed arrangement to access their PCLS or could have used:

(a)

the PCLS from the comparator scheme; or

(b)

other assets to create a lump sum without transferring the pension.

(5)

Identify the impact taking their PCLS may have on the level of other benefits which the consumer may obtain from the comparator scheme.

10.13

E

Answer ‘yes’ to this question when the available evidence demonstrates that:

(1)

the consumer did not have the requisite capacity for loss because they were not able to forego scheme benefits to achieve this objective; and/or

(2)

there was an alternative way for the consumer to access income-related benefits flexibly without transferring their pension benefits; and/or

(3)

Example (1) is present and taking higher PCLS makes it likely that the consumer would exhaust their pension savings during their lifetime (having regard to how the consumer will access their pension savings and the factors listed at 10.2R(5) above); and/or

(4)

the firm has not collected the necessary information in both of the Information Areas 5 and 6 of the Information Section and so it is not possible to complete the assessment in 10.11R because the firm has not demonstrated that it has a reasonable basis for believing that the consumer is able to bear the risk of the pension transfer to achieve their objective; and/or

(5)

the firm has not obtained the necessary information in Information Area 2 of the Information Section and so it is not possible to understand the consumer’s rationale for pursuing this objective.

10.14

G

For the purposes of 10.12R(4)(b), the firm should have considered the following alternative options, where they were available:

(1)

where the lump sum need/objective relates to paying off a debt, whether they can restructure a mortgage or other debt;

(2)

making increased contributions to a workplace pension scheme to increase the PCLS;

(3)

whether using the PCLS provision in the comparator scheme(s) will meet the consumer’s lump sum need/objective;

(4)

whether the consumer can meet their lump sum need/objective using other available funds in a scheme with flexible benefits or from other savings or investments;

(5)

taking a short-term loan.

Example 5: an aim of the transfer is to preserve or protect the value of the consumer’s pension benefits but the comparator scheme(s) benefits would meet the consumer’s needs

10.15

R

Refer to the available evidence in Information Area 2 of the Information Section:

(1)

if the consumer has any objective related to preserving the value of their pension benefits or protecting their benefits from the PPF, take the steps in 10.16R; or

(2)

if the consumer does not have this objective, answer ‘no’ to this question and proceed to Example 6.

10.16

R

Take the following steps to determine whether this example is present:

(1)

Refer to the available evidence in Information Areas 2, 5 and 6 of the Information Section on the consumer’s objectives and financial situation.

(2)

Identify the relevant comparator scheme(s) benefits.

(3)

Identify whether the comparator scheme(s) benefits would have met the consumer’s needs. To do this:

(a)

identify the consumer’s needs in retirement;

(b)

refer to the available evidence and Table 2 in CONRED 4 Annex 22G to identify the pension benefits the consumer would be likely to receive from the comparator scheme(s), having regard to the PPF income cap as it applied prior to 19 July 2021; and

(c)

decide whether the level of comparator scheme benefits would meet the consumer’s needs in (a).

10.17

E

(1)

Answer ‘yes’ to this question when the available evidence demonstrates that:

(a)

the level of comparator scheme benefits meets the consumer’s income needs; and/or

(b)

where Example 7 is present, the consumer wanted guaranteed income or returns and the comparator scheme met those needs; and/or

(c)

the firm has not collected the necessary information in both of the Information Areas 5 and 6 of the Information Section and so it is not possible to complete the assessment in 10.16R because the firm has not demonstrated that it had a reasonable basis for believing that the consumer was able to bear the risk of the pension transfer to achieve their objective.

(2)

Answer ‘no’ to this question where the level of comparator scheme benefits was not likely to meet the consumer’s income needs in retirement.

Example 6: the consumer wants to retire early but can meet their objective(s) in the comparator scheme(s)

10.18

R

Refer to the available evidence in Information Area 2 of the Information Section:

(1)

if the consumer has a priority objective related to accessing benefits from their pension prior to the relevant scheme NRD (an ‘early retirement objective’), take the steps in 10.19R; or

(2)

if the consumer does not have this priority objective, answer ‘no’ to this question and proceed to Example 7.

10.19

R

Take the following steps to determine whether this example is present:

(1)

Refer to the available evidence in Information Areas 2, 5 and 6 of the Information Section on the consumer’s objectives and financial situation.

(2)

Refer to the available evidence and Table 2 in CONRED 4 Annex 22G to identify what early retirement options were likely to be available and any protected retirement ages in:

(a)

the proposed arrangement; and

(b)

the comparator scheme(s).

(3)

Consider whether the consumer may have retired at a protected retirement age in the comparator scheme(s).

(4)

If (3) was not an option, identify whether there was an alternative way to meet the consumer’s objective without giving up the comparator scheme(s) benefits, including using:

(a)

other pensions (defined benefit or defined contribution);

(b)

income from part time work; and

(c)

savings, investments or other assets.

(5)

Decide whether the firm has a reasonable basis for believing that the recommendation to transfer to retire early:

(a)

meets the consumer’s investment objectives; and

(b)

the consumer is able financially to bear any risks consistent with their investment objectives.

10.20

E

Answer ‘yes’ to this question when the available evidence demonstrates that:

(1)

the consumer could have retired in the comparator scheme(s) at a protected retirement age; and/or

(2)

the consumer did not have the requisite capacity for loss because they were not able to forego comparator scheme benefits to achieve this objective; and/or

(3)

a lower risk suitable alternative was available to achieve this objective; and/or

(4)

it was likely that the consumer would exhaust their pension savings during their lifetime (having regard to how the consumer will access their pension savings and the factors listed at paragraph 10.2R(5) above) and so there will be minimal death benefits available; and/or

(5)

the firm has not collected the necessary information in both of the Information Areas 5 and 6 of the Information Section and so it is not possible to complete the assessment in 10.19R because the firm has not demonstrated that it has a reasonable basis for believing that the consumer is able to bear the risk of the pension transfer to achieve this objective; and/or

(6)

the firm has not collected the necessary information in Information Area 2 of the Information Section and so it is not possible to understand the consumer’s rationale for this objective.

Example 7: the consumer wants or prefers guaranteed income or returns

10.21

R

Refer to the available evidence in Information Areas 2 and 3 of the Information Section:

(1)

if the consumer wants or indicates a preference for guaranteed income or returns, take the steps in 10.22R; and/or

(2)

if the consumer does not have this objective, answer ‘no’ to this question and proceed to Example 8.

10.22

R

Take the following steps to determine whether this example is present:

(1)

Refer to the available evidence in Information Areas 2, 6 and 7 of the Information Section on the consumer’s objectives and financial situation.

(2)

Identify whether the proposed arrangement:

(a)

guarantees the consumer’s income or returns; or

(b)

takes into account the consumer’s preference for a guarantee and puts in place a sustainable strategy to achieve this end.

(3)

Determine whether the recommendation to transfer met the consumer’s preference for guaranteed income or returns.

10.23

E

Answer ‘yes’ to this question when the available evidence demonstrates that:

(1)

the consumer wants or has indicated a preference for guaranteed income or returns throughout retirement; and

(2)

the firm has recommended that the consumer transfer into a proposed arrangement that does not meet these needs; or

(3)

the firm has not collected the necessary information in Information Area 3 of the Information Section about the consumer’s attitude towards secure income or guarantees and so it is not possible to complete the assessment in 10.22R because the firm has not demonstrated that it has a reasonable basis for believing that the consumer has the requisite attitude to risk; or

(4)

Example 8 is present.

Example 8: the consumer does not have the necessary attitude to risk

10.24

R

Take the following steps to determine whether this example is present:

(1)

Refer to the available evidence in Information Areas 3 and 5 of the Information Section regarding the consumer’s preferences regarding risk taking and risk profile and their understanding of the risk of transfer.

(2)

Compare (a) with (b):

(a)

the consumer’s preferences regarding the risks specific to pension transfers in general, focusing on the consumer’s attitude to:

(i)

safeguarded benefits or guarantees;

(ii)

flexible benefits or the ability to control how and when they withdraw money from their pension savings;

(iii)

managing their investments or paying for someone to manage their investments on their behalf; and

(iv)

the long-term sustainability of their fund;

(b)

the risks associated with a pension transfer that the consumer must have been willing to take for a recommendation to transfer to be suitable. The relevant transfer risks are:

(i)

that their investments in the proposed arrangement will not perform as expected, and they will have less income in retirement (investment risk);

(ii)

that the withdrawals from the proposed arrangement (planned and/or ad hoc) are not sustainable and the consumer will run out of money in retirement (longevity risk);

(iii)

that inflation will erode the real value of the income they are able to draw from the proposed arrangement (inflation risk); and

(iv)

that the consumer and/or their partner may become less able to make the necessary financial decisions in relation to their income as they age (for example, due to illness or diminishing capacity).

(3)

Decide, with reference to (2)(a), whether the consumer was willing to take the risks associated with a pension transfer in (2)(b).

10.25

E

(1)

Answer ‘yes’ when the available evidence demonstrates that:

(a)

the consumer was not willing to take the risks in 10.24R(2)(a); and/or

(b)

Example 7 or 10 is present; and/or

(c)

the firm has not collected the necessary information in Information Area 3 or 4 of the Information Section and so it is not possible to complete the assessment in 10.24R(3) because the firm has not demonstrated that the recommendation meets the consumer’s objectives.

Example 9: the firm’s transfer analysis does not support a recommendation to transfer

10.26

R

Take the following steps to determine whether this example is present:

(1)

Refer to the available evidence in Information Areas 7, 8 and 9 of the Information Section, the transfer value analysis and the suitability report.

(2)

Identify the benefits and options available in the proposed arrangement.

(3)

Identify the benefits and options likely (on reasonable assumptions) to be paid in the comparator scheme(s).

(4)

Review the firm’s analysis of the effect of replacing the benefits in the comparator scheme with the benefits in the proposed arrangement, having regard to the consumer’s circumstances, including their age, marital status and, where relevant, their objectives for taking a PCLS or early retirement.

(5)

Compare (a) with (b):

(a)

the rate of return required on investments in the proposed arrangement to match the income benefits in the comparator scheme(s) that is relevant to the consumer’s circumstances and objectives:

(i)

if the consumer is single or unmarried, use the single life critical yield;

(ii)

if the consumer is taking a PCLS, use the critical yield that factors in the consumer taking the PCLS;

(iii)

if the consumer wishes to retire early, use the critical yield at the early retirement date;

(b)

the investment risk that the consumer must be willing and able to take in the proposed arrangement (taking into account a realistic rate of return) to match the desired income benefits in the comparator scheme(s).

(6)

Review how the firm says the transfer analysis supports the firm’s recommendation to transfer.

(7)

Decide whether the firm has demonstrated that the transfer analysis supports the recommendation to transfer, taking into account:

(a)

the comparison undertaken at (5); and

(b)

the analysis carried out by the firm and assessed at (4) and (6).

10.27

E

(1)

Answer ‘yes’ to this question when the available evidence demonstrates that:

(a)

the firm has not demonstrated that the transfer analysis supports the recommendation to transfer, for example because:

(i)

the critical yield indicated in the transfer value analysis is likely to be unattainable, factoring in the term to retirement and the consumer’s attitude to investment risk; or

(ii)

the capitalised value of death benefits (where this is a priority objective) is significantly higher under the comparator scheme(s) than that available from the proposed arrangement; and/or

(b)

the consumer would not have been able to match the rate of return to replicate the benefits being given up if they invested in line with their attitude to risk; and/or

(c)

Example 8 is present; and/or

(d)

Example 1 is present; and/or

(e)

the firm has not collected the necessary information in Information Area 7 or 9 of the Information Section and so it is not possible to complete the assessment in 10.26 because the firm has not demonstrated that the recommendation meets the consumer’s objectives.

Example 10: the firm did not have a reasonable basis for believing that the consumer had the necessary knowledge and experience to understand the risks involved in transferring their DB scheme

10.28

R

Take the following steps to determine whether this example is present:

(1)

Refer to the available evidence and the information recorded in Information Area 4 of the Information Section, including:

(a)

the correspondence with the consumer;

(b)

the transfer analysis; and

(c)

the suitability report.

(2)

Establish the consumer’s level of investment experience and knowledge of pension transfers, pensions and investments at the time of the advice:

(a)

in relation to defined benefit occupational pension schemes;

(b)

in relation to defined contribution schemes;

(c)

in relation to the cash equivalent transfer value offered, including any actuarial reductions;

(d)

in relation to the separate roles of the trustee and the sponsoring employer of a scheme;

(e)

in relation to the features, benefits and risks of the comparator scheme available to it at the time; and