O&M for FAD
JonKinsley
Member
Hi everyone, this is my first post on this board and I'm hoping someone can help.
We have a client who has an existing FAD arrangement that we look after and she has recently retired and would like to transfer her fairly basis workplace pension to her existing arrangement.
Normally if a client is looking to access funds, there is no requirement to run an O&M report to compare the costs if FAD isn't available on the existing plan, however for this particular client she does not intend to access any further benefits until April 2020.
As FAD isn't available on her existing plan, would an O&M report be required in this instance? This is the first case we have dealt with where the client is already in FAD, but wants to bring further uncrystallised funds across so we are all unsure which way would be best.
Thanks for your help in advance.
Jon
Comments
What's required and what's not is discretionary for a lot of this. One compliance department will have differing views to another. There's no rules and right or wrong answers here.
Personally, I think comparing the costs before and after transfer needs to go into the report, even if the reason for transfer is not related to costs as such. Whether that means O&M or just noting the charges is an in-house decision.
I agree with Aron, what needs to be asked is why are we considering the transfer of the work place scheme to the existing FAD arrangement?
Why does the client want to do this?
It is likely much more cost effective however, it may not offer beneficiary drawdown which whilst the client can have the amount paid tax-free (if dies before 75) as a lump sum, it then immediately forms part of the beneficiaries estate which if it is a married couple of a similar age could negate the benefit of the pension being outside of the estate.
As Aron says, the need for O&M or SelectaPension is up to your own internal compliance people, personally, so long as you have good reasons for a transfer, cost need only be considered when the existing arrangement is extraordinarily expensive.
Hi Jon,
There are rules for suitability, in COBS 9, and also good practice on replacement business in FSA FG12-16. Compliance with them however is highly subjective.
If you have a requirement for an O&M report on all business-as-usual pension switching, then someone has decided that your firm should do that. The same person should be answering this question about the FAD switch and provide guidance on how the system should be used to achieve what they want from an O&M report.
Cost differences on replacement business advice must always be considered. Any extra costs must be justified. The increase in costs could be small, or large. What is the benefit of the new plan that justifies the increase in costs? This could be a very easy question to deal with, or a very difficult one. It will depend on the benefits of moving and the costs of doing so. It too is highly subjective.
It should be sufficient to list the benefits of the new plan that don't exist in the current plan, which is no longer in force as an active employer scheme. Weigh this against the additional costs, stated in a simple, as-at-today basis, and make a decision. All O&M is doing is presenting the cost differences in a certain way. It doesn't deal with the trade-offs from switching to a higher contract.