As a follow up from my previous blog covering Letter of Authority Hints & Tips, I thought it would be great to delve a little deeper. The aim of this blog, as you may have established from the title, is to give you some tips on combatting those Defined benefit (DB) schemes!

Now, we all know how hot DB schemes are in financial services at the moment and most of us would rather hide in a darkened room than get involved, but fear not, I am here to shed some light on those dark corners…

I’m here to give you the tools required to ensure that we prod those DB schemes for all of the information that they don’t hand to us on a plate. Because, generally speaking, it’s that hidden bit of vital information which, when missed, could have the biggest impact on the client, when you’re producing the initial TVC & APTA pack. The TVC & APTA pack which helps form the basis of the advice your client is to take… So, I don’t think I need to stress how important it is that there are no ambiguous question marks around the scheme information.

Benefit equalisation

The first thing to look out for is the equalisation of benefits. This may apply to anyone with servicing during 17th May 1990 and 5th April 1997. This is known as the Barber period, which was aptly named after the court case ‘Barber and Allonby’.

Following this case, the European Court of Justice ruled that “benefits should be equalised even in instances where there was no comparator of the opposite sex”. Without delving too deep (I appreciate we’ve already taken it back almost 30 years… stay with me) the main focus around Barber benefits is to ensure that you are confident as to whether they apply to your client. If they do, they’re usually broken down separately to the main scheme benefits, due to Barber benefits being payable at an earlier than normal retirement age (NRA).

Believe it or not, we’ve had multiple schemes provide us with what looks like full scheme information and a full benefit breakdown – only for us to run a TVC, see that the figures don’t quite add up and upon questioning the scheme, establish that there is a group of Barber benefits which they hadn’t disclosed to us.

Hopefully, this blog will help to prevent a delay for you and your client in future. Our recommendation would be to request confirmation of Barber benefits within your initial information request, depending on your clients’ service period.

Late retirement factors

Quite often, a scheme may have an NRA which applies to all benefits -however, they may allow the member to take unreduced benefits from an earlier age, i.e. NRA of 65 and unreduced benefits available from age 60.

Generally speaking, the NRA would be the age at which the benefits would become payable at their expected rate based on scheme revaluation. On occasion, using the example above, the scheme may apply a late retirement to the benefits from age 60 (therefore seemingly for analysis purpose, the NRA becomes age 60).

The scheme may not provide these late retirement factors from the outset and it may not become clear unless you have an age 65 quote from the scheme and are able to compare the benefits with TVC output. For ease, we would recommend you include a request for late retirement factors and the ages they apply to/from in any initial information requests.

Guaranteed Minimum Pension (GMP) increases pre-GMP age

This one will be applicable if you are aware that your client has GMP benefits within their DB scheme, and they’re looking to retire on those benefits before the GMP payable age (65 for males and 60 for females).

Standard increases, whether that be fixed, S148, or limited, are always applicable to GMP. However, the benefits are only tested against these increases at GMP payable age. If the client chooses to enter retirement before this time, they may receive only a proportion of their GMP or on occasion, the scheme may not pay any at all until the client reaches GMP age.

Clarifying how the GMP benefits are increased pre-GMP age, both pre and post-retirement, is vital when providing the client with their estimated benefits at retirement. It will also provide a more accurate picture when including these benefits in cashflow when providing the TVC & APTA pack to your client.

I hope this helps! If you have any questions regarding DB schemes and how Para-Sols can help – please get in touch!

Cheryl Lunn – Operations Coordinator.

This really is an age-old question, alongside legends such as “why is the sky blue?” and “in the land of Cinderella, why did she have such unique feet that she was the only size in the village, yet the shoe was such a perfect fit, it still managed to fall off?”. I digress, sorry. So, the question of “just what is a paraplanner?” has haunted me at dinner parties, the occupation box on ANY application form and even in my own industry. It’s not one that is easily answered but SM&CR (Senior Management & Certification Regime) has dictated that we give it another bash.

For those not familiar with the new SM&CR proposal, in a nutshell, it is new FCA legislation around ensuring the people in your business who can impact upon the client are properly regulated and appropriate for that role. Senior Managers and Certified People. (Learn more about how our sister company, Apricity, can help you in your SM&CR preparations here).

The Senior Management side of things is pretty easy to define, but the second area; the Certified personnel is slightly more obscure. The relevant factors that firms would be required to consider in assessing individuals include whether the role is simple or largely automated, or involves exercising discretion or judgement.

In essence, the FCA has said it is up to advice firms to conclude whether paraplanners should be considered to hold the Client Dealing Function. The FCA rule has been drafted in a way “that provides firms with the flexibility to exercise judgement on whether a role requires certification” Helpful.

Therefore, it may seem quite obvious for the majority of people in your business. You know yourself who has what impact (planners/advisers) and those who have less impact (administrators etc), but what about that weird hybrid we call the lesser spotted Paraplanner?

In general, there are three species of paraplanner.

The in-house paraplanner.

Usually found around the same watering hole and highly skilled in client relations, business models and specific investment propositions. They tend to have the larger impact on your business and depending on the genus of your particular paraplanner, are the most likely to be needing certification. This is especially important if they are involved at any decision level of the advice process or if they contribute to any investment proposition choices.

The outsourced paraplanner.

These tend to roam around the habitat and are curious creatures. They taste a lot of different foods and specialise in a number of different providers, investment strategies, tax areas and financial planning solutions. They tend to be less involved with the client, interacting more with the adviser and thus tend to have less impact upon the decision making of the business and are less likely to require certification.

The third is the middle ground. The Liger, if you will. Those paraplanners who are either inhouse but make no decisions and perform more administrative duties or are just essentially report writers; or the outsourced paraplanners who have such a strong relationship with the adviser they do assist in decision making and can impact upon the end client. 

Essentially, it will be up to adviser firms to decide whether your chosen paraplanner should be considered a certified employee and whether or not they should be included in the second tier level of the SM&CR rules. My advice is to use discretion, but to err on the side of caution. If you think they may have any impact, have them certified. It can’t hurt. Unlike Ligers which apparently can hurt you. (I appreciate I’ve stretched this metaphor really far now and am going to leave before I turn full Attenborough and start preaching about how we should recycle paraplanners to stop turtles getting their noses stuck in them).

Jo Campbell – Director of Quality & Operations.