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Pension transfer advice transition period rules summary

26 October 2020

The contingent charging ban began on 1 October but where the process started prior to 1 Oct 2020 firms can still charge contingently if the personal recommendation is made prior to 1 January 2021.

ATEB Consulting’s Steve Bailey summarises the transition rules effective until 1 January focussed on the requirements to qualify for transitional treatment.

One-page summary: Not applicable, the one-page summary is required in all suitability reports from 1 October 2020 although certain elements relating to workplace pension may be omitted – see below.

Contingent charging: Firms may charge contingently where they can demonstrate that:

  • the advice process before 1 October; and
  • contingent charging terms were agreed in writing before 1 October; and
  • a personal recommendation/suitability report is prepared before 1 January 2021.

Consideration of workplace pension scheme (WPS): Firms may:

  1. Omit the comparison with a WPS in APTA; and
  2. The one-page summary can omit the comparison with a WPS …

… where they can demonstrate that:

  • the advice process before 1 October; and
  • a personal recommendation/suitability report is prepared before 1 January 2021

Cash flow modelling*: Firms need not carry out cashflow modelling as set out in the new rules where they can demonstrate that:

  • the advice process before 1 October; and
  • a personal recommendation/suitability report is prepared before 1 January 2021

* The new rules on cash flow modelling

The rules shown below are applicable from 1 October 2020 unless the transitional conditions listed above apply.

Where a firm prepares a cashflow model, it must:

  • produce the model in real terms in line with the CPI inflation rate;
  • (if the net income is being modelled) ensure that the tax bands and tax limits applied are based on reasonable assumptions;
  • take into account all relevant tax charges that may apply in both the ceding arrangement and the proposed arrangement; and
  • include stress-testing scenarios to enable the retail client to assess more than one potential outcome.

Our View

January will soon enough be on us and render these transitional rules obsolete. However, it would be very easy for pipeline cases to be non-compliant unless firms note the requirements carefully.

For example, we have seen cases where the process started before 1 October but the client fee agreement was not signed until after 1 October. This fails the tests for charging on a contingent basis and so those clients will now have to be charged on a non-contingent basis.

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