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CTC Commentary on CP15/30

The CTC response to the FCA 15/30 paper was lengthy and in great detail since it is a core part of CTC’s offering. Below is a summary. A full copy of CTC’s submission is available on request.

Summary

For those intending to withdraw benefits immediately or within the next 6 months, TVA in its current form should not be required (as is currently the case).

However a direct comparison between the benefits provided by the DB scheme for immediate retirement and the equivalent annuity (or its closest equivalent) should be presented.

Further at this point drawdown critical yields are also highly relevant as an indicator of value.

For those more than 6 months from their intended point of taking benefits (whether they are over 55 or under 55) the existing TVA calculation should be retained, but supplemented by 3 drawdown critical yields based on the benefits provided by the DB scheme.

CTC considers that the comparison at the scheme’s normal retirement age is almost always relevant. This also provides the firmest basis for comparison since the basis for the calculation is firm and fixed. If a customer has indicated an intention to draw benefits earlier then that age is also important for comparison.

Death benefits are an important component of the overall analysis as there can be a very distinct difference in the value between those provided by the scheme and a replacement DC plan, particularly for those who are unmarried.

 

CTC agrees that TVA reports are too long, and as such unlikely to be read.   The current plethora of figures presented (normally with jargon that the average customer will not understand) also means that focus may not be on the most relevant of those figures.   It would be useful to draw a distinction between the information that needs to be provided to the customer in all circumstances, and that which can still be provided by a TVAS system to inform the adviser and which do not necessarily need to be passed on to the individual.

CTC considers that the problem of insistent clients is exacerbated by the FCA’s own starting point that any transfer from a DB scheme should be deemed unsuitable.   This inevitably means that the formal advice provided will be skewed to reflect this assumption i.e. the existence of such a starting point itself creates more insistent clients and this will mean that the government’s aspirations that more people should utilise Pension Freedoms will be thwarted.

The regulatory starting point also means that because of the deemed unsuitability of such a transfer, the cost of advice will be increased by a firm’s consideration of potential “mis-selling” liabilities in the future.   Uncertainty inevitably increases cost.

This regulatory risk should be reduced if the communications to the customer are properly framed, delivered in a comprehensive fashion and to agreed standards.

The cost of advice is also increased by the new necessity to take the whole of a customer’s financial situation into account.   Focused advice would clearly be cheaper to provide but introduces extra risk.   Online data collection and analysis tools have a clear role to play here.

There are relatively few references to the exploding use of new technology. The consultation refers to the fact that there is little trust in the pensions market generally but increasingly consumers do trust their ability to assimilate information received online and to use online planning tools when they are made directly relevant to them. There is far too much emphasis on paper based solutions in the FCA’s whole approach.