A year ago the FCA announced it was going to carry out a Thematic Review of Retirement Income advice and now the results are in. Mark Whybrew, Head of Compliance at DP Pensions, discusses the “somewhat positive” mood from the FCA in their findings and, importantly, how we can support advisers.

Astonishingly, when the announcement was made in 2023 that was nearly 8 years on from Pensions Freedom, although we did have the global pandemic during that period. This has, arguably, focussed the FCA’s attention even more – consumers’ needs have changed with the rising cost of living and the economic downturn meaning they require more flexible options.

The FCA published their results in March within TR 24/1 along with a Dear CEO Letter. Remember this piece of work is paramount with the Consumer Duty’s Principle 12 “a firm must act to deliver good outcomes for retail customers,” including those with characteristics of vulnerability. However, a moot point was that the file review assessments pre-dated the implementation of the Duty, so perhaps a difficult area to assess. Albeit the FCA did consider how firms were “planning” on complying and the results show that just over 50% of the advice firms subject to the desk-based advice review had not (at that time) defined their target market or shown that their products met their customers’ needs. Predictably, a concern that the FCA did voice.

Without going into all the statistics (which you can read in the above links or the industry’s press) I just want to remind you that, as per the norm with these types of reviews, the FCA’s concerns are underpinned by the lack of evidence, incomplete files or poor record keeping. Advisers should know what clients are being charged for ongoing advice and to make sure that it is being provided. I have explained further down how we can help in this area.

What key areas of improvement did the FCA identify?

1. Income withdrawal strategy
2. Risk Profiling and CFL
3. Advice suitability
4. Periodic Reviews
5. Effective Oversight

Overall, the mood is fairly upbeat and poor practice is in the minority. It’s more a case of “fine tuning” advisers’ processes and perhaps extra work behind the desk, rather than actually in front of the client. However, additional time spent by paraplanners and compliance checkers all need to be taken into account when reviewing your advice charges.

I am sure this will not be first and last review in this area but in view of the relatively high level of suitable advice cases sampled you would like to think the FCA will focus their time on other areas (in the short term at least).

Support is available from DP Pensions

How can we help? As a SIPP provider we are always looking to assist financial advisers and their clients in the best ways possible. So in particular, focussing on the Thematic Review and the key areas of concern raised by the FCA, we have highlighted some examples of good practice where we can assist advisers  –

✔   Our drawdown illustrations show clients when their income will be depleted. Advisers can request these or produce them on our website here at SIPP Illustrations

✔   Any client in drawdown will receive a bespoke letter and illustration from us once a year to show the impact of the level of pension that they are taking on their pension fund over time. The aim is to highlight how long their funds will last and to assist clients (and their advisers) to review the level of pension being taken.

✔   We want to make the client aware that the income meets their needs, not just now but in the future, as we recognise that this can constantly change throughout retirement. If it does not meet their income need, then it’s a prompt to review and change it.

✔   Clients are referred to an income tax calculator tool so that they can see how their withdrawal will be taxed and this is also confirmed to them separately. Advisers can also request this from us in advance as part of their recommendation and suitability process.

✔   A fund exhaustion check is also carried out by the client’s dedicated Account Manager so that the client (and their adviser) are made aware in advance if the pension pot or crystallised funds are close to being depleted. This avoids any awkward conversations advisers might have with clients over missing a monthly pension payment.

✔   Advisers are informed if a client contacts us directly to take pension benefits to make the adviser aware and give them an opportunity to provide advice.

✔   Technical Support is available to advisers for clients crystallising after April 2024 regarding Transitional Tax Free Amount Certificates. More information can be found here Member Benefits

✔  Clients will be receiving a Lifetime Allowance statement showing the % used before April 2024 which advisers will find useful in their advice process. We will send these to advisers in bulk but if you require this now then do let your Account Manager know.

✔   We will also be putting together some more case studies regarding the Lifetime Allowance and L-day changes so watch this space.

✔   Clients in vulnerable circumstances, or those that show vulnerable characteristics, are also flagged on our system so that we can adapt our processes to their needs to make sure they continue to be treated fairly. We will also liaise with the client’s financial adviser (if they are not already aware) and agree a strategy going forward.

✔   Our literature and client communications are regularly independently tested to ensure they are easy to understand.

✔   Flexible adviser charge fees are available as we recognise the different service and recommendations provided by advisers to meet their clients’ ever changing needs. Full client lists showing your adviser fees can be requested if you are in the process of compiling your client register.

✔   The client’s annual statement pack provides a drawdown illustration showing when the client’s fund will be depleted based on the current strategy. It also clearly discloses all the charges within the SIPP including any adviser fees.

Feedback from financial advisers on the above is that it’s extremely useful when carrying out pension reviews for their clients and provides valuable prompts throughout the year if the client’s pension income does need to be adjusted sooner rather than later.

Where can you find out about DP Pensions and our products?

Product details, target market and product specification documents are available on our website within our Literature section.

We also have a Due Diligence Information sheet which provides more information about our company that can be found under our Financial Adviser section.

Under this section you will see that we feature on a number of independent research tools that financial advisers can access to assist with their client risk profiling, recommendation and suitability of advice process:

·         Defaqto ·         MoneyFacts ·         Capita Synaptic ·         SelectaPension ·         DDHub

·         Money Management ·         Threesixty ·         Investment Sense ·         Centra ·         Engage

If there are any other tools, or your network’s panel, that you would like us to feature on, then please let us know so that we can carry out the necessary due diligence checks for the onboarding process.

“Excellent” Customer Service rating

We always want to deliver the best possible service to our clients and use our feedback questionnaires to learn how we can improve our proposition. We are very proud to say that our customer service is rated as “excellent” (4.5 out of 5 stars) by our SIPP and SSAS clients as at 31/03/24.

Get in touch

If you would like to speak to us regarding taking benefits from an existing pension, or about a new case, then please contact your Account Manager or telephone 01580 762 555.

We thought it would be helpful to provide you with an update regarding some of the changes that have come in on the 6th April 2024. HMRC have made us aware that there are some issues that they know about with the legislation and are planning to rectify, these may affect whether a client should transfer or take benefits.

All of our Literature has been updated and can be requested from your Account Manager. More information can also be found under our Technical section.

Member benefit forms

We may have already received a member benefits form in for a crystallisation post 6th April 2024. When we identify that we have received the old version of our form we will use this form but we will ask you to confirm the following before we are able to process the tax free cash request:

1) Whether the member wishes to rely on a transitional tax free cash certificate when we do the calculations – if they do, we will need the certificate before the pension scheme is crystallised
2) We will need an acknowledgement that as we only have Lifetime Allowance percentage figures, we will use a standard formula provided by HMRC to convert the Lifetime Allowance percentage figures confirmed in the form to a Lump Sum Allowance and a Lump Sum and Death Benefit Allowance figure
3) Whether the member has taken a serious ill health lump sum payment from any pension scheme

Members who have already turned 75

The way the standard calculation works at a Relevant Benefit Crystallisation Event (RBCE) would mean that 25% Tax Free Cash would be assumed to have been paid at age 75 from any uncrystallised funds and from the growth in any crystallised funds (because the growth used to trigger further Lifetime Allowance being used up). These members may benefit from applying for a transitional tax free cash certificate before their first Relevant Benefit Crystallisation Event post 6th April 2024 as the certificate will be based on the actual tax free cash paid.

Furthermore prior to the 6th April 2024 any Tax Free Cash paid after a member turned 75 was not a Benefit Crystallisation Event and so not tested against the members Lifetime Allowance.

HMRC have confirmed that there is an issue for members who have turned 75 and have taken Tax Free Cash after their 75th birthday because the current legislation does not consider any Tax Free Cash paid after 75 in the calculations. To ensure that a Transitional Tax Free Cash Certificate is issued with the correct figures on these members will need to wait until the government has amended the legislation to correct this error.

Enhanced Protection and transfers

There is currently an issue for members with Enhanced Protection wishing to transfer to another pension scheme. If these members currently transfer they will lose their Enhanced Protection. HMRC are aware of this issue and will be amending legislation to correct this error. In the meantime we will be asking you to confirm whether the client has Enhanced Protection for a transfer in or transfer out of a scheme.

Enhanced Protection and Primary Protection – protected lump sum rights of more than £375,000

There is an issue with paragraph 1(b) of schedule 29 of the Finance Act 2024 which means that if an individual with Enhanced or Primary Protection with protected lump sum rights of more than £375,000 wishes to take their Tax Free Cash entitlement the way the legislation is currently worded prevents this from happening. HMRC are aware of this issue and will be amending legislation to correct this error.

Lump Sum Death Benefits – payment from funds which crystallised prior to 6th April 2024

The payment of Lump Sum Death Benefits for members who have died under age 75 from funds crystallised prior to 6th April 2024 are currently limited by the permitted maximum. The government will be amending legislation to rectify this so that the payment of Lump Sum Death Benefits from these funds are entirely tax free. Until the legislation has been changed the Legal Personal Representative may wish to delay the payment of a Lump Sum Death Benefit from these funds.

Death Benefits

It is increasingly important for Expression of Wish forms to be up to date. Lump Sum Death Benefits paid from members funds who die under the age of 75, for uncrystallised funds and funds crystallised after the 6th April 2024, will be tested against the new Lump Sum and Death benefit Allowance. If the Lump Sum Death Benefit Allowance is exceeded the excess will be taxed at the recipient’s marginal rate of income tax. However, funds designated to a flexi access drawdown fund will not be tested against the Lump Sum and Death Benefit Allowance.

Overseas transfer allowance

When someone has crystallised benefits prior to 6th April 2024 their Overseas Transfer Allowance is reduced by 100% of their previously used Lifetime Allowance. If these funds, in drawdown, are then transferred to a QROPS they will be tested against and deducted from the Overseas Transfer Allowance again. Legislation will be amended to remove the double counting and members may wish to defer transferring to a QROPS until the double counting has been resolved.

Applying for a transitional tax free cash certificate

For any client if they can provide complete evidence that they have received TFC of less than £268,275 (or if they have protection the amount their protection certificate allows) we can issue a transitional tax free cash certificate. Complete evidence in this case would be evidence of the tax free amounts taken or not taken and any Lifetime Allowance used from any external pension scheme(s) that they have had. If the client only has a pension scheme with us we would require a written statement confirming that they wish to apply and that they haven’t taken benefits from any other pension schemes.

There has to be a Relevant Benefit Crystallisation Event for payment to be made (a crystallisation so there needs to be uncrystallised funds available).

Fixed Protection 2016 and Individual Protection 2016 application deadlines

For the majority of members the deadline for an application for either Fixed Protection 2016 or Individual Protection 2016 has been set at 5th April 2025.

L-day is upon us and so we are here to help with any queries that you may have. Please see our Technical updates for more information about the changes and our Literature which as all been updated.

We thought it would be helpful to provide you with information regarding our deadlines for our processes in relation to the tax year end. If you have any queries please let us know.

Contributions

For existing clients wishing to make an ad hoc contribution we can accept completed contribution application forms and funds by either electronic transfer or by cheque up to and including the 5th April 2024. If the contribution application form is not fully completed the date of the contribution will be the date we receive all the information required to be able to process the contribution, this means that the contribution may fall into the 2024/25 tax year. We are happy to accept contribution application forms by e-mail, with a scanned or electronic signature. We will check the information on the form and will confirm if we require any further information before confirming that payment can be made. Please note that payment must have been received by the end of the 5th April for it to count in this tax year.

Please do not arrange for a contribution to be made without the contribution application form having been completed by the client first. If we do receive funds without a completed form to support the contribution we will be unable to move the funds for investment and the contribution funds will remain in the SIPP bank account until we are able to complete all our checks. Please ensure that clients are completing the latest version of our contribution application form, this can be found at SIPP Money In

New SIPPs

We would ask that all new SIPPs with supporting contributions are received by the 5th April 2024. If you have an urgent SIPP to be set up please contact your Account Manager to discuss the details and to ensure that we receive all the documents that we require to be able to complete the SIPP set up process.

Pension Payments

Pension Payments are paid on the last working day of each month. Please ensure that cleared funds are in your client’s SIPP bank account by the 20th March 2024 for payment on 28th March 2024. If any changes are to be made to a clients level of pension payment or any client wants to start receiving pension payments for the first time please provide us with the completed paperwork by the 20th March 2024. We can accept a scanned copy of the paperwork.

Taking Benefits

We receive a high volume of requests for clients to take benefits from their pension schemes towards the end of the tax year. We may need to obtain valuations from third parties to process a request and this may affect the length of time it takes to complete the process. To be able to make a Tax Free Cash payment or pension payment there needs to be cleared funds in the SIPPs bank account and pension payments will be subject to the cut of date of the 20th March 2024.

Should you have an urgent request for a client to take Tax Free Cash please contact your Account Manager to discuss the requirements in more detail. Please also ensure that clients complete the latest version of our member benefits form which can be found at SIPP Member Benefits

We are very proud to announce that we have again received a Defaqto 5 Star Rating for our Premier Trust Full SIPP and for our SSAS.

Defaqto is one of the UK’s most trusted sources of financial product and market intelligence, supporting financial institutions, intermediaries and consumers to make smarter financial decisions.

The 5 Star Rating means that our Premier Trust Full SIPP and SSAS are excellent products with a comprehensive range of features and benefits. They both provide one of the highest quality offerings on the market.

More information about Defaqto can be found at www.defaqto.com

It is quite common for members and their advisors to consider an in-specie transfer of assets from one pension scheme to another. Elaine Turtle, Director at DP Pensions, discusses that certain matters need to be taken into account.

Cash transfers

Firstly, if the assets being transferred are actually going to be encashed once transferred over then there is little point in doing this as an in specie transfer, as the timescale for an in specie transfer can be from 4 weeks to 3 months! So if the plan is to encash rather than transfer in specie, we recommend that you have the SIPP set up and the account opened with the new Investment Manager in advance and at that point you can tell the existing Pension Provider / Investment Manager to sell down the assets and we will request the cash transfer – this usually means we will have funds within 10 days and they can be moved across immediately to the new Investment Manager once received. This is normally the quicker option if the portfolio is being re-jigged.

A partial in specie transfer

If the plan is to just transfer some assets in specie (and the rest as cash) it might be worth considering doing a partial transfer first of the cash and then go back for the in-specie transfer after the cash is received. The reason for this is that most Providers only transfer cash once the in specie is completed so cash can be sitting for some time out of the market and transferring the cash first can help avoid this. This can only be done if the member is not fully crystallised and the value that is transferred is equal to or below the value of the uncrystallised amount. There will also usually be 2 charges from the existing Pension Provider as there will be 2 transfers. Also note in specie transfers usually incur a charge whilst a cash transfer might not. Always best to check with the investment provider first on your options and charges.

Full in specie transfer

So, if in specie is the best way forward then we will require a list of existing assets before the transfer can be requested to check that all the investments held are in the Permitted Investment section of our Investment List. Our Investment List complies with the FCA’s Standard Asset list. Please note if a stock has been delisted or is suspended, we won’t accept this and, in fact, they can’t be transferred. It means that the account with the existing Investment Manager can’t be closed and so the existing Pension Plan can’t be moved either. It will mean having two Pension Plans going forward until the suspended funds can be moved or are written off and that is the same for delisted stock. During which time you might be charged two sets of fees (one from each pension provider).

Time expectations

Once the stock/ assets have been checked as acceptable to us we will then complete the discharge forms for the other Pension Provider and send these off – please note the Origo system does not deal with in specie transfers.

If the in specie is staying with the existing Investment Manager / stockbroker then this should make matters much quicker. So, it helps if when you send our SIPP opening forms that you send us the account opening forms for the Investment manager / stockbroker so we can have the account opened quickly ready to deal with the in specie transfer. The Investment manager /Stockbroker must wait on instructions from the existing Pension Provider. Once instructions are sent off to the existing Pension Provider, we will leave it 2 weeks before we chase and then chase weekly after that.

Once we have confirmation that the investments/ stock has been transferred we will request a valuation again to review this against the original list to make sure all the assets have been transferred. If cash has been received as part of the transfer, then we will move this across to the Investment manager / stockbroker if that has been requested. This cash will also be used to settle our fees and any fees being paid to your financial adviser.

Pension Scams

One thing we need to look out for on a transfer is that the new Scheme is not part of a scam. Please see our link on our website with regards to We pledge to combat pension scams and protect savers

Here is Metro Bank’s announcement to the London Stock Exchange.

“Response to press speculation

Metro Bank notes the recent press speculation regarding a potential capital raise. Following Metro Bank’s update on capital planning on 12 September 2023, the Company continues to consider how best to enhance its capital resources, with particular regard to the £350m senior non-preferred notes due in October 2025. The Company continues to meet its minimum regulatory capital requirements and had a total capital plus MREL ratio of 18.1% and a leverage ratio of 4.4% as at 30 June 2023.

The Company is evaluating the merits of a range of options, including a combination of equity issuance, debt issuance and /or refinancing and asset sales. No decision has been made on whether to proceed with any of these options.

For three consecutive quarters ended 30 June 2023, the bank has been profitable on an underlying basis, and it expects the Q3 trading update to show continued momentum in Personal and Business Current Account growth and customer acquisition, in line with expectations. Metro Bank continues to be well positioned for future growth.”  05/10/2023

Source: https://otp.tools.investis.com/clients/uk/metro_bank_plc/rns/regulatory-story.aspx?cid=1352&newsid=1720003

We thought it would be helpful to provide you with an update regarding the changes that have been announced in the Spring Budget 2023, if you have any queries please speak to a financial adviser. If you do not have a financial adviser we recommend that you take advice from an FCA regulated financial adviser to discuss your options. Please note that we are not authorised to provide financial or investment advice but we are happy to assist with technical issues.

Contribution Limits

The following changes have been confirmed:

• The Annual Allowance is the maximum amount of contributions (personal and employer) that can be made to registered pension schemes each year. The annual allowance is currently £40,000 and this will be increasing to £60,000 from 6th April 2023 – carry forward will still be available from the 3 previous tax years
• If you have taken a pension payment under flexi-access drawdown from a defined contribution pension scheme, the amount of contributions that you can make to these schemes is reduced from £40,000 to £4,000 per annum. From the 6th April 2023 the £4,000 limit is being increased to £10,000.
• The Tapered Annual Allowance was introduced on the 6th April 2016 and since April 2020 anyone with taxable income over £240,000 wishing to make contributions to registered pension schemes had their annual allowance reduced by £1 for every £2 of income they had over £240,000. This tapering stopped when an individual’s allowance reached £4,000 for contributions. The budget has confirmed that the Tapered Annual Allowance will be increasing from £4,000 to £10,000 from 6th April 2023.
• The adjusted income threshold for the Tapered Annual Allowance is also increasing from £240,000 to £260,000 from 6th April 2023.

Lifetime Allowance

There have been some significant changes announced in respect of the Lifetime Allowance which in turn has affected the level of Pension Commencement Lump Sum (Tax Free Cash) that is available to individuals:

• The Lifetime Allowance is the total amount of money that an individual can build up in their pension scheme(s) before a tax charge is applied. The Lifetime Allowance tax charge is being removed from the 6th April 2023 and the Lifetime Allowance will be totally abolished from the 2024/2025 tax year. This means that an individuals pension fund can build up to any level without any tax charges being applied.
• Although the Lifetime Allowance is being abolished the maximum tax free lump sum that an individual will be able to take from their pension funds will be frozen at £268,275 (25% of £1,073,100 the current Lifetime Allowance). Anyone with tax free cash protection or with valid Lifetime Allowance protection for example Enhanced Protection or Fixed Protection will still keep their entitlement to a higher tax free lump sum.
• Members with Enhanced Protection or Fixed Protection (applied for before 15th March 2023) will be able to accrue new pension benefits with effect from 6th April 2023 without losing their protection.

About this document

This update is based on our understanding of pension’s law and regulation.

Every care has been taken to ensure that it is correct. It is issued by DP Pensions Ltd for use by our pension clients and their advisers.

Please note that DP Pensions Ltd are not authorised to give financial advice. We do not know all of your circumstances or details of any other pension schemes of which you are a member. You should contact your financial adviser for help on how this legislation may affect you personally.

No responsibility to any third party is accepted if this information is used for any other purpose. The legislation and HMRC practice may change in the future.

If you have any queries regarding the information in this update and how it affects your circumstances then please contact your financial adviser.

Overview

In July 2022, the Financial Conduct Authority (FCA) published the final rules for Consumer Duty – PS22/9: A new Consumer Duty, with the Finalised Guidance FG22/5.

The Consumer Duty (‘the Duty’) sets the standard of care that firms should give to customers.

There are three layers – the Consumer Principle, cross-cutting rules and four outcomes.

Firstly, the ‘Principle’ itself, which will form Principle 12 in the FCA’s sourcebook:

                     A firm must act to deliver good outcomes for retail customers.

What does ‘good outcomes’ mean? To help, the FCA have published ‘cross-cutting’ rules (which broadly cut across/apply to the four outcomes). These cross-cutting rules are for a firm to:

✔ Act in good faith
✔ Avoid causing foreseeable harm
✔ Enable and support retail customers to pursue their financial objectives

Below are the four areas in which the FCA expects to see good outcomes:

✔ products and services
✔ price and value
✔ consumer understanding
✔ consumer support

Influencing Factors

Target Market

DP Pensions Ltd, as the “manufacturer” of our SIPP products, are required by 30 April 2023 to share appropriate information with “distributors,” such as financial advisers and third party investment providers, which is necessary for them to meet their own obligations under Consumer Duty. For more information on the documents listed below, please see our Literature and Financial Adviser sections:

-Product Specification – Full SIPP
-Product Specification – Single Investment SIPP
-Product Specification – 7IM SIPP
-Financial Adviser Terms of Business
-DP Pensions Ltd due diligence information
-SIPP Adviser Charge Agreement

Contact and Support

Our dedicated project team, governed by Compliance and the Board of Directors, is required to review and identify any gaps within the customer journey in consideration with our SIPP products and service offering.  We are also happy to share information with our distributors.

If you would like further information on Consumer Duty, or find out ways in which DP Pensions Ltd can support existing (and new) financial advisers and third party investment providers that market/distribute our SIPP products, please get in touch with:

Elaine Turtle	Director	01580 762555	elaine.turtle@dapco.co.uk
Sally North	Compliance Manager	01580 762555	sally.north@dapco.co.uk

The pensions industry plays a vital role in protecting saves and helping fight pension scammers.

We will raise awareness, educate and protect pension savers. We pledge to combat pension scams. We will:

• Regularly warn members about pension scams
• Encourage members asking for cash drawdown to get impartial guidance from Pension Wise
• Get to know the warning signs of a scam and best practice for transfers by completing the scams module in the Trustee Toolkit and encourage all relevant staff or trustees to do so
• Study and use the resources on the Financial Conduct Authority (FCA) ScamSmart website, our scams information and the PSIG code
• Consider becoming a member of the Pension Scams Industry Forum by contacting PSIG
• Report concerns about a scam to the authorities and communicate this to the scheme member

What this means for you and your pension

Scammers can be difficult to spot and might seek to exploit your trust. We’re already committed to protecting our members, but we want to go one step further. Working together, we will help protect you by pledging following the principles of the pledge to combat pension scams. We have self-certified to The Pensions Regulator that we meet the standards of the pledge.

For more information:

www.tpr.gov.uk