DB and immediate vesting
Nathan
Member
Hi All
When I do a DB transfer where the client is taking immediate benefits, I still carry out a TVAS providing a critical yield and document it within the report.
I am being asked to take it out but my belief is because the critical yield is over 30%.
The client has just been made redundant and so the scheme is not applying an early reduction factor.
any thoughts?
When I do a DB transfer where the client is taking immediate benefits, I still carry out a TVAS providing a critical yield and document it within the report.
I am being asked to take it out but my belief is because the critical yield is over 30%.
The client has just been made redundant and so the scheme is not applying an early reduction factor.
any thoughts?
Comments
The TVAS really doesn't make any sense at this stage does it? You're no longer comparing apples with apples, but apples with pears and this level of CY is not uncommon in my experience.
This is a regulatory requirement - COBS 19.1.2 and 19.1.2A.
TVAS was designed to enable a comparison of future scheme benefits to what an alternative pension plus 'standard' annuity would give - albeit the entire TVAS process is subject to numerous flaws.
Where an immediate benefit is being taken then a comparison to what the scheme would provide now to alternative benefits needs to be carried out; not a TVAS but either a scheme pension v annuity or some sort of investment return to match the scheme benefit over life expectance of client.
Having got that 'simple' annual investment return I would then be looking at downside risk / loss analysis on the investment side which I do via Voyant alongside internal research on our benchmark portfolios historic market falls.
Like Suse I would do a cash flow based on taking scheme benefits v cash flow on alternative.
COBS 19.1.3 (5) where an immediate crystallisation of benefits is sought by the retail client prior to the ceding scheme’s normal retirement age, compare the benefits available from crystallisation at normal retirement age under that scheme.
That is a TVAS. Nathan, as your client appears to be going before NRA, your file needs a TVAS. Your suitability report needs to explain what they are not going to get at NRA from the ceding scheme by taking benefits following a transfer now.
Because of this requirement, I do emphasise the CY in the report, even if that means explaining that it has reduced value in the circumstances. The report needs to pick out the relevant information from the TVAS and add value to the client.
I agree that the TVAS has no value at NRA when immediate benefits are being secured, especially via annuity.
But it can show the client (or force an adviser to highlight and duscuss) what they are giving up before NRA and I'm glad of its introduction as a requirement following pension freedoms.
Im sure at some point there will be mileage in a DB transfer session at a future powwow as this area is coming more into focus than before.
Chartered Financial Planner
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Paraplanner. F1, Apple, Nutella, ice cream. No trite motivational quotes. Turning a bit northern.
Paraplanner. F1, Apple, Nutella, ice cream. No trite motivational quotes. Turning a bit northern.
Chartered Financial Planner
Certified Financial Planner
Head of Technical at Paradigm Norton
Twitter: https://twitter.com/danatkinsonuk
Instagram: https://www.instagram.com/danatkinsonuk/
Chartered Financial Planner
Certified Financial Planner
Head of Technical at Paradigm Norton
Twitter: https://twitter.com/danatkinsonuk
Instagram: https://www.instagram.com/danatkinsonuk/
Andy