Hi, I would like to ask that, Are flexi-access & capped drawdowns a type of personal pension? If so, does the early exit charge cap (i.e. PS 16/24 published by FCA) apply for transfers & conversions after 31/03/2017? Does the early exit charge cap also applicable to a fixed-term annuity (that pays regular income over pre-agreed policy term with death & maturity value, often guaranteed & possibly also a surrender value, often non-guaranteed) Are there any plan to raise FSCS compensations for income drawdowns? If I understand correctly, current compensations are not as generous as other long-term life insurance policies, e.g. lifetime annuities. Does a member use up more lifetime allowance by moving more unvested DC pension funds after 06/04/2006 (i.e. A-day) into a capped drawdown in payment that started before A-day? Thanking you in advance.
Hi Edward I will have a go at answering these, but I should emphasise that the examiners would not expect you to know any of these details, as they are not included in the Core Reading. Pensions legislation is pretty complex, and for the exam you only need to know the extent of facts as they are presented in the Core Reading - not beyond that. The purpose of the early exit charge cap is to reduce significantly (or remove) penalties that are being applied on personal pensions contracts between age 55 (minimum pension age) and the policyholder's chosen retirement age. The aim is therefore to avoid policyholders who wish to take advantage of the new pensions benefit freedoms (either by withdrawing capital directly or transferring to an income drawdown product, say) being penalised. Since drawdown arrangements are specifically designed to allow policyholders to withdraw regular amounts, there would not be such "early exit penalties". Most of the personal pensions which have such penalties still in place (and so which are affected by the charge cap) were written in the 1990s. I am not sure that I understand your description of the "fixed term annuity", but it doesn't sound like a personal pension policy and so the early exit charge cap is not relevant ("personal pensions" are contracts which relate to the accumulation of savings in order to provide for retirement, not the payment of income in annuity form). An income drawdown product may be treated as an investment product rather than life insurance product, in which case the FSCS compensation would differ and, as you suggest, be less generous. There has been some consideration about whether the rules for life insurance and investment products should be brought more in line, particularly where the distinction is blurred. I would suggest looking at the FSCS website if you are interested in the latest position on this - although, as noted above, it is not in scope for SA2. I am not sure that I have understood your final question correctly, but broadly speaking the total amount of accumulated pension funds is checked against the lifetime allowance every time that a "benefit crystallisation event" occurs. This would include originally moving into a drawdown product and would also include subsequent transfers from personal pensions into drawdown. The details of how the lifetime allowance is assessed is pretty complicated, and again out of scope for SA2. If you need further information on any of the above, I would suggest the Pensions Advisory Service, FCA, FSCS and HMRC websites.
