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Changes to the requirements for Illustrations

The Financial Services Authority (FSA), now the Financial Conduct Authority (FCA), announced that new rules were to be introduced for SIPP providers on 6th April 2013 in order to produce Key Feature Illustrations. Before this date, SIPPs were exempt from the rules which only applied to standard personal pensions. Hence, SIPP providers did not need to produce key feature illustrations at the point of sale.

SIPP providers now have to prepare key feature projections which take account of charges, reduction in yield information and the best available reasonable assumptions of investment performance in relation to the asset holdings of the SIPP.

The objective of the FCA is to create a level playing field for all competing personal pensions and SIPP providers and provide sufficient information for customers and their advisers.

The FCA is also requiring SIPP providers to disclose any interest they receive from banks, in order that customers realise the profit the SIPP provider retains from money invested in the scheme.

IFA’s may therefore be asked more questions as to the ultimate investment within the SIPP in order to reflect appropriate charges and growth rates.

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In addition the FCA introduced further rules which will be applied on 6th April 2014.

The maximum standard projection rates, which give an indication of possible future returns and take account of charges, will be reduced.

Tax advantaged products, for example SIPPs and personal pensions, will have the projection rates changed from 5%, 7% and 9% to 2%, 5% and 8% respectively. This will reflect a more realistic possible investment performance for future returns customers may receive.

These projection rates which are used in key feature illustrations for SIPPs need to be adjusted for the effects of inflation in the future. Currently these rates do not take account of inflation but moving forwards they will need to do so. This will have the advantage of being consistent with the annual Statutory Money Purchase Illustration (SMPI) which the customer receives as these investment rates do take account of the effects of inflation in the future.

The FCA have no objective for SIPP providers to use the 2014 rules changes earlier.

For further information please contact Kerry Houghton, SIPP/SSAS Business Development Manager on 01772 550614 or email kerry.houghton@taypat.co.uk.

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