Product disclosure and the customer's right to cancel or withdraw

Part

COB Conduct of Business

Chapter

Product disclosure and the customer's right to cancel or withdraw

Printed on: 30/12/2024

Rulebook at: 01/01/2005

COB 6

Product
disclosure and the customer's right to cancel or withdraw

COB 6.1

Product disclosure

01/12/2004

Application

COB 6.1.1

COB 6.1 to COB 6.5 apply to a firm:

(1) which sells, personally recommends or arranges (brings about) for the sale of a packaged product to a private customer or to the trustees of an occupational pension scheme or to the trustee or operator of a stakeholder pension scheme; or
(2) which manages, sells or personally recommends a cash deposit ISA or cash deposit CTF for or to a private customer; or
(3) which effects, personally recommends or arranges for a variation of a life policy for or to a private customer; or
(4) which effects, personally recommends or arranges income withdrawals for or to a private customer; or
(5) which is a long-term insurer and receives:

(a) a request from a private customer for a quotation for the surrender value of a life policy; or
(b) any other indication that a private customer wishes to surrender a life policy: or

(6) which receives a request from a private customer for a retirement quotation in respect of any of the following contracts provided by it:

(a) a personal pension scheme;
(b) a stakeholder pension scheme;
(c) a free-standing additional voluntary contribution contract;
(d) (where an open-market option is available under the contract terms) a retirement annuity contract; or
(e) (where an open-market option is available under the contract terms) a pension buy-out contract; or

(7) which enters into a distance contract with a retail customer to accept deposits.

01/12/2001

COB 6.1.1A

In COB 6.1 to COB 6.5, references to a private customer include, in relation to the conclusion of a distance contract, a retail customer.

09/10/2004

COB 6.1.2

(1) COB 6.2.21 R (Exceptions from the requirement to provide key features for life policies) and COB 6.2.24 R (Exceptions from the requirement to provide key features for schemes) contain exemptions from the requirement to produce key features in relation to life policies and schemes.
(2) COB 6.4.3 G to COB 6.4.5 G and COB 6.4.19 R to COB 6.4.20 G set out how the rules apply where packaged products are sold to the trustees of certain occupational pension schemes or to the trustees or operators of stakeholder pension schemes.

01/12/2001

Application of COB 6.2.26R

COB 6.1.2A

COB 6.2.26 R applies to a firm when it sells, personally recommends or arranges for the sale of a UCITS scheme which is a recognised scheme under section 264 of the Act (Schemes constituted in other EEA States) to a client.

01/12/2001

Purpose

COB 6.1.3

COB 6.1 to COB 6.5 amplify Principle 7 (Communications with clients), which requires a firm to pay due regard to the information needs of its customers. In the case of packaged products there is a special need to ensure that private customers are supplied with information which will highlight particular packaged product features. This also needs to be achieved in a way which will optimise the private customer's ability to make a comparative analysis of different packaged products. These rules also address a similar information need in relation to cash deposit ISAs, cash deposit CTFs and when a firm enters into a distance contract to accept deposits with a retail customer.

09/10/2004

Requirement to produce key features

COB 6.1.4

(1) A product provider or stakeholder pension scheme operator must, for each packaged product which it offers produce key features which, as to design and content, comply with the requirements of COB 6.1, COB 6.2 and COB 6.5.
(2) A firm to which COB 6.4.13 (1) applies must, for each cash deposit ISA or cash deposit CTF it offers, produce the information document required by COB 6.5.42 R or COB 6.5.42A instead of key features. That information document must comply with COB 6.1, COB 6.2 and COB 6.5 as to design and content.
(3) (1) does not apply in relation to a simplified prospectus scheme.

09/10/2004

Quality and production of key features

COB 6.1.5

A firm must ensure that any key features or information document it produces in relation to a packaged product, cash deposit ISA or cash deposit CTF is in writing, whether in printed hard copy or in electronic format, and:

(1) is produced and presented to at least the same quality and standard as the associated sales or marketing material being used by the firm to promote the packaged product, cash deposit ISA or cash deposit CTF to customers; and
(2) is separate from any other material given to the customer, unless it is produced for a collective investment scheme, investment trust savings scheme or stakeholder pension scheme ; in that case it may be included as part of another item of sales or marketing material, but only if the key features or information document appears with due prominence.

01/12/2001

COB 6.1.6

Separate in COB 6.1.5 R (2) means stand-alone for these purposes. Where key features are produced in hard copy printed format, firms should, in complying with COB 6.1.5 R, have particular regard to the quality of paper, the type size and the use of colour printing. Where an electronic format is used, the firm should pay regard to the design and appearance of the key features screens, as compared to other screens being used to promote the product. Where key features are permitted to be included within another item, the need for due prominence is unlikely to be satisfied if they are hidden away at the end, or are produced in such small type that their impact on the reader is likely to be materially less than other parts of the document or series of screens.

01/12/2001

COB 6.2

Provision of key features

01/12/2004

Application

COB 6.2.1

COB 6.2 applies to a firm in accordance with COB 6.1.1 R.

01/12/2001

Medium for provision of key features

COB 6.2.2

The key features or information which the rules in COB 6.2, COB 6.2 and COB 6.4 require a firm to provide to a private customer in relation to a packaged product, cash deposit ISA or cash deposit CTF must be provided by the firm in a durable medium.

09/10/2004

COB 6.2.3

For detailed guidance on electronic provision please refer to COB 1.8 (Application to electronic media) and COB 3.14 (The internet and other electronic media).

01/12/2001

COB 6.2.4

Firms are reminded that any key features or other information required by COB 6.4 - COB 6.5 is a form of financial promotion and therefore the financial promotion rules contained in COB 3 apply (subject to the application provisions in COB 3.1 to COB 3.3).

09/10/2004

COB 6.2.5

COB 3.7 requires a firm to keep records of non-real time financial promotions to private customers for certain periods of time. These periods are: indefinitely for a record relevant to a pension transfer or pension opt out; six years for a record relevant to a life policy, pension contract or stakeholder pension scheme; and three years in any other case.

01/12/2001

COB 6.2.5A

Where this chapter requires key features or other information to be given, it does not require the same information to be provided again if the private customer already has it.

09/10/2004

Life policies

COB 6.2.6

COB 6.2.7 R - COB 6.2.18 R are disapplied by COB 6.2.21 R in relation to certain customers resident outside the United Kingdom.

01/12/2001

COB 6.2.7

When a firm sells, personally recommends or arranges the sale of a life policy to a private customer, the private customer must be provided with appropriate key features before the private customer completes an application for the policy, subject to COB 6.2.9 R (Sales through intermediaries) and COB 6.4.27 R to COB 6.4.31 R (telephone sales and other exemptions).

09/10/2004

COB 6.2.8

Where a private customer has responded to a direct offer financial promotion, the mailing package or financial promotion will have included example-based key features - there is no requirement to provide a further set of key features to such a private customer in respect of the same transaction.

01/12/2001

Exception for life policies: sales through intermediaries

COB 6.2.9

COB 6.2.7 R does not apply to a product provider when its life policy is sold on the personal recommendation of, or arranged to be sold by, another person, provided that other person:

(1) is a firm (or appointed representative) operating from an establishment maintained by the firm (or appointed representative) in the United Kingdom; or
(2) is operating from an establishment in an EEA State whose law imposes an obligation on the person to provide information about the life policy in accordance with articles 3 and 5(1) and (2) of the Distance Marketing Directive.

09/10/2004

Life policies: pre-completion variations

COB 6.2.12

(1) Where key features have already been provided by a firm to a private customer in accordance with COB 6.2.7 and the terms for the proposed life policy are subsequently altered before the private customer completes an application form, the firm must ensure that the private customer is provided with revised key features, unless the alteration is one or more of the following:

(a) the amount of the premium is changed;
(b) the amount of any commission or remuneration payable is reduced;
(c) a rider benefit is added, removed or amended.

(2) If (1)(a) to (c) apply, then, subject to COB 6.4.27 to COB 6.4.31 (telephone sales and other exemptions), if the contract is to be a distance contract with a retail customer, the retail customer must be provided with details of such changes in a durable medium in good time before the contract is concluded.

09/10/2004

COB 6.2.13

COB 6.2.12 R is intended to allow simple changes to be made before a private customer commits himself without further packaged product disclosure information being provided. Changes in the amount of premium alone, of whatever size, will not require revised key features if the underlying purpose of the proposed contract is unchanged. So, for example, an increase in the proposed regular premium for a personal pension policy, will not require revised key features; nor will a change in premium and sum assured under a mortgage policy if the loan has to be increased before the house sale is finalised. However, changes to the type of packaged product or the underlying purpose would require revised key features - examples being a change from regular to single premiums under a personal pension policy, or a change from maximum life cover to balanced or standard protection under a flexible whole-life policy, with or without a change in premium. Revised key features would be required where the rate or basis of commission or remuneration was increased, but not where the amount increased simply because of a change in premium.

01/12/2001

COB 6.2.14

Where key features have already been provided to a private customer by a firm, and the terms of the proposed life policy are materially altered after the private customer completes an application form, the private customer must be provided with details of the change in a durable medium as soon as practicable and offered revised key features.

09/10/2004

COB 6.2.15

What constitutes 'materially altered' requires consideration of the facts in the circumstances of each case. Changes which lead to an increase in the proposed premium of 25 per cent or less can be regarded as not material and can be ignored, so long as the underlying policy terms and conditions are the same. Other changes to the terms of the proposed contract, such as an increase in the rate or basis of commission, a different charges structure or an extension of the policy term should be regarded as material.

09/10/2004

Variations to existing life policies

COB 6.2.16

When a policyholder applies to vary a life policy issued on or after 1 January 1995 (or is recommended to do so) and the variation of the policy gives rise to a right to cancel under COB 6.7.7 R, the policy holder must be provided with:

(1) the information required by COB 6.5.15 R to COB 6.5.19 R, COB 6.5.23 R to COB 6.5.25 R, COB 6.5.27 R to COB 6.5.28 R and COB 6.5.38 R; and
(2) in the case of a variation which results in a new distance contract, all the contractual terms and conditions and the information in COB App 1;

in a durable medium by the firm personally recommending, arranging or effecting the variation in good time before it is put into effect, unless COB 6.2.19 R (sales through intermediaries) or COB 6.4.27 R to COB 6.4.31 R (telephone sales and other exemptions) applies.

09/10/2004

COB 6.2.16A

(1) When a long-term care insurance contract which is

(a) not a pure protection contract and which was issued on or after 1 January 1995; or
(b) a pure protection contract and which was issued on or after 31 October 2004;

is varied so as to bring into effect provisions for long-term care benefits, the firm must provide the private customer with appropriate key features in good time sufficient to enable the private customer to consider them before the variation takes effect.
(2) If the circumstances of the variation, whether by the exercise of an option or otherwise, make it impossible to provide the key features before the variation takes effect, the firm must do so as soon as possible afterwards.

31/10/2004

COB 6.2.17

Key features were introduced for new policies sold from 1 January 1995. One way of meeting the requirements of COB 6.2.16 R is by providing a complete set of new key features to the policyholder.

09/10/2004

COB 6.2.18

(1) When a policyholder applies to vary:

(a) a life policy issued before 1 January 1995; or
(b) a pure protection contract issued before 31 October 2004 and which would after 30 October 2004 be a long-term care insurance contract;

(or is personally recommended to do so) and the variation of the policy gives rise to a right to cancel under COB 6.7.7 R, information must be given to the policyholder by the firm that is personally recommending, arranging or effecting the variation before it is put into effect, unless COB 6.2.19 R or COB 6.4.27 R to COB 6.4.31 R (telephone sales and other exemptions) applies.
(2) When giving the information in (1), the firm must:

(a) believe on reasonable grounds that the information given is sufficient to enable the policyholder to understand the consequences of the variation; and
(b) in the case of a variation which results in a new distance contract, in good time before the variation is put into effect, provide all the contractual terms and conditions and the information in COB App 1.

31/10/2004

COB 6.2.19

COB 6.2.16 R and COB 6.2.18 R do not apply to a product provider when the variation to its life policy is effected on the personal recommendation of or arranged by another person, provided that other person:

(1) is a firm (or appointed representative) operating from an establishment maintained by the firm (or appointed representative) in the United Kingdom; or
(2) is operating from an establishment in an EEA State whose law imposes an obligation on the person to provide information about the variation to the life policy in accordance with articles 3 and 5(1) and (2) of the Distance Marketing Directive.

09/10/2004

Exception for life policies: non-UK customers

COB 6.2.21

There is no requirement for key features to be provided for a new life policy or a variation to an existing policy if, at the time that the private customer signs the application, he is habitually resident:

(1) (except for distance contracts with retail customers) in an EEA State other than the United Kingdom; or
(2) outside the EEA and he is not present in the United Kingdom.

09/10/2004

Exceptions for life policies: variations held within a CTF

COB 6.2.21A

COB 6.2.7 does not apply to a CTF provider in relation to a variation to an existing policy held within a CTF, if:

(1) the terms and conditions, including all charges, are the same as applied at the time of the purchase, or the most recent purchase or payment, of the existing policy; and
(2) key features outlining those terms and conditions were issued to the customer in respect of that previous purchase.

01/12/2001

Provision of key features: schemes

COB 6.2.22

When a firm sells, personally recommends or arranges for the sale of a scheme to a private customer, unless COB 6.2.24 R (exceptions) or COB 6.4.27 to COB 6.4.31 R (telephone sales and other exemptions) applies, the private customer must be provided with key features for the scheme before the private customer completes an application for the scheme holding.

09/10/2004

COB 6.2.23

(1) COB 6.2.22 R applies not just to new purchases but also to any recommendation or application to transfer the value of a particular fund holding within a scheme to a different fund within the same scheme.
(2) Where a private customer has responded to a direct offer financial promotion, the mailing package or direct offer financial promotion should have included example-based key features - there is no requirement to provide a further set of key features to such a private customer in respect of the same transaction.

09/10/2004

Exceptions from the requirement to provide key features for schemes

COB 6.2.24

A firm need not provide key features to a private customer in respect of a scheme if:

(1) the firm is a product provider and the scheme holding is sold on the personal recommendation of, or arranged to be sold by another person, provided that other person:

(a) is a firm (or appointed representative) operating from an establishment maintained by the firm (or appointed representative) in the United Kingdom; or
(b) is operating from an establishment in an EEA State whose law imposes obligations on the person to provide information about the scheme holding in accordance with articles 3 and 5(1) and (2) of the Distance Marketing Directive; or

(2) at the time he signs the application, the private customer is habitually resident outside the EEA and is not present in the United Kingdom; or
(3) (except for distance contracts with retail customers) the scheme holding is purchased by a private customer on an execution-only basis; or
(4) the scheme holding is purchased on behalf of a private customer by an investment manager exercising discretion; or
(5) the sale of the scheme holding is arranged or recommended by an investment manager who is not exercising discretion and the private customer has agreed, either in relation to that specific holding or generally, that key features need not be provided; or
(6) a private customer is making a purchase of a scheme holding (whether or not held within a CTF) in a fund in which he already has a scheme holding and has already been provided with appropriate key features covering the purchase; or
(7) a private customer is transferring from accumulation units to income units of the same scheme (or vice versa) and has already been supplied with key features which cover the transfer; or
(8) the scheme is a UCITS scheme recognised under section 264 of the Act (Schemes constituted in other EEA States); however, if the sale is by way of a distance contract, the firm must provide all the contractual terms and conditions and the information in COB App 1 instead of key features.

01/04/2004

Requirement to offer a simplified prospectus for section 264 schemes

COB 6.2.26

(1) When a firm sells, personally recommends or arranges for the sale of a UCITS scheme which is a recognised scheme under section 264 of the Act (Schemes constituted in other EEA States) to a client, it must offer the client free of charge a copy of the scheme's most recent simplified prospectus before an application for the scheme holding is completed.
(2) The simplified prospectus must meet the requirements of the UCITS Directive necessary for the scheme to enjoy the rights conferred by the Directive.
(3) When the scheme holding is purchased on behalf of a client by an investment manager exercising discretion, the requirement in (1) will be satisfied by the investment manager being offered the simplified prospectus free of charge before the application form for a scheme holding is completed.
(4) A firm must not carry on any of the activities referred to in (1) in relation to a UCITS scheme which is a recognised scheme under section 264 of the Act unless it is satisfied on reasonable grounds that:

(a) a copy of the scheme's simplified prospectus has been filed with the FSA before any units in the scheme are marketed in the UK; and
(b) the information contained in the simplified prospectus is up to date and is not in need of revision;

and that any subsequent amendments thereto have been filed with the FSA.

01/04/2004

COB 6.3

Post-sale confirmation: life policies

01/12/2004

Application

COB 6.3.1

COB 6.3 applies to a firm in accordance with COB 6.1.1 R, in respect of life policies.

20/09/2001

COB 6.3.2

The requirement on long-term insurers to issue post-sale confirmation applies only to life policies which are packaged products. COB 6.3 does not require a long-term insurer to issue post-sale confirmation in respect of schemes, pure protection contracts or stakeholder pension schemes.

01/12/2001

COB 6.3.3

When a private customer buys a life policy which is a packaged product or varies such an existing life policy, and the variation gives rise to a right to cancel under COB 6.7.7 R, the long-term insurer must send to, or in the case of an industrial assurance policy must either give or send to, the private customer the information required in COB 6.5.46 R, unless COB 6.3.6 R applies.

01/12/2001

COB 6.3.4

Post-sale confirmation can be provided in printed hard copy and sent through the post direct to the private customer. For industrial assurance policies, the post-sale confirmation may be delivered by the firm's representative rather than sent by post. When a private customer has approached the firm or has responded by submitting his application through an electronic medium (such as e-mail or through the Internet), the post-sale confirmation may be provided by the same means. But electronic methods should only be used where the private customer expects to communicate in this way (see COB 1.8 (Application to electronic media).

01/12/2001

COB 6.3.5

The post-sale confirmation required by COB 6.3.3 R must be sent or given to the private customer as soon as reasonably practicable after the contract is effected.

09/10/2004

Exceptions to post-sale confirmation

COB 6.3.6

A long-term insurer need not send or give the post-sale confirmation required by COB 6.3.3 R when:

(1) the long-term insurer has taken reasonable steps to determine that the life policy or variation is purchased or effected on behalf of a private customer by an investment manager exercising discretion; or
(2) the life policy is purchased by the trustees of an occupational pension scheme; or
(3) the life policy is purchased by the trustees or manager of a stakeholder pension scheme; or
(4) a life policy issued before 1 January 1995 is being varied; or
(5) at the time the private customer signs the application for the new life policy or variation, he is habitually resident:

(a) in an EEA State other than the United Kingdom; or
(b) outside the EEA and he is not present in the United Kingdom.

01/12/2001

COB 6.4

Product disclosure: special situations

01/12/2004

Application

COB 6.4.1

COB 6.4 applies to a firm in accordance with COB 6.1.1 R, in respect of occupational pension schemes, self invested personal pension schemes,, cash deposit ISAs, cash deposit CTFs, Revenue allocated CTFs, traded life policies, stakeholder pension schemes, packaged products, other deposits and long-term care insurance contracts.

09/10/2004

COB 6.4.2

Firms are reminded that, under COB 6.2.2 R, the key features required to be provided to a private customer under COB 6.4 must be provided by the firm in a durable medium. See also COB 6.2.3 G - COB 6.2.5 G.

09/10/2004

Occupational pension schemes

COB 6.4.3

COB 6.1 (Packaged product and ISA disclosure) and COB 6.2 (Provision of key features) apply to a firm in respect of the purchase of packaged products, whether life policies or schemes, by the trustees of money-purchase occupational schemes. There is no requirement for a firm to provide key features for packaged products sold to trustees of defined benefit pension schemes.

01/12/2001

COB 6.4.4

(1) When a firm sells, personally recommends or arranges the sale of a new group or master life policy, the first in a series of individual life policies or the first units in a particular scheme to or for the trustees of a money-purchase occupational scheme, it must provide the trustees with key features, in accordance with COB 6.2.7 R to COB 6.2.25 R.
(2) In COB 6.2 to COB 6.5, for the purposes of (1), the firm must treat the trustees as private customers.
(3) In addition to the information to be provided to trustees under COB 6.4.4 R (1), the firm must ensure that key features are made available to the trustees to distribute to all scheme members at the outset of the scheme and for subsequent new members.
(4) The requirement in COB 6.4.4 R (3) applies to main scheme benefits and to additional voluntary contributions where members' benefits are linked to earmarked segments of life policies or schemes. It does not apply where trustees make pooled investments and make their own arrangements for allocation of investment returns to determine members' benefits, whether attached to defined benefit pension schemes or money purchase occupational scheme.

01/12/2001

COB 6.4.5

(1) The illustrative figures within the key features provided under COB 6.4.4 R (1) can be on an example basis, using a range of representative actual or hypothetical scheme members (covering, for example, different ages, sexes and salaries), so that the trustees can assess the effectiveness of the investment for their pension scheme members.
(2) The definition of money-purchase occupational scheme includes executive pension plans (established for directors, executives and senior employees), small self-administered schemes that provide money-purchase benefits and additional voluntary contribution schemes.
(3) Group personal pension schemes are not occupational pension schemes and COB 6.4.4 R does not apply to them. Firms should therefore provide each person who is offered membership of a group personal pension scheme with key features in accordance with COB 6.1 and COB 6.2. This does not preclude generic key features being sent out as part of a financial promotion, provided that a post-sale confirmation is issued in accordance with COB 6.3.3 R.
(4) The objective of COB 6.4.4 R (3) is to ensure that prospective scheme members have access to information about the occupational pension scheme that could enable comparison with alternative personal investments. Firms may decide for themselves the format (but not content) of this information. For example, individual sets of key features can be supplied or a schedule of details which the trustees or their advisers can assimilate into other pension scheme communications.

01/12/2001

Self-invested personal pension schemes

COB 6.4.6

(1) A firm which sells, personally recommends or arranges the sale of a packaged product ) to or for a member, prospective member or trustees of a self-invested personal pension scheme, must provide key features to that member or trustees, in accordance with COB 6.2.7 R to COB 6.2.25 R.
(2) In COB 6.2 to COB 6.5, for the purposes of (1), members, prospective members and trustees must be treated by the firm as private customers.

01/12/2001

COB 6.4.7

Investments within a self-invested personal pension scheme (a "SIPP") are effected by the trustees on behalf of scheme members. Key features should be given to the trustees and to members of SIPPs when packaged products (whether life policies or schemes) are recommended by a firm to scheme members or effected by SIPP trustees. Notice of the right to cancel should also be copied to SIPP members in these circumstances, in accordance with COB 6.7.31 R.

09/10/2004

Income withdrawals

COB 6.4.8

When a firm personally recommends, arranges or effects income withdrawals to or for a private customer, the customer must be provided with key features in good time before he signs any form of application or authority electing to make those withdrawals, whether that election is made with advice on investments or on an execution-only basis, unless COB 6.4.10 R to COB 6.4.12 R or COB 6.4.27 R to COB 6.4.31 R (telephone sales and other exemptions) applies.

09/10/2004

COB 6.4.9

In relation to an election to make income withdrawals, the requirement for the provision of key features in:

(1) COB 6.2.7 R also applies when an existing life policy is to be endorsed;
(2) COB 6.2.22 R also applies when an existing scheme holding is to be used.

01/12/2001

COB 6.4.10

In relation to an election to make income withdrawals, the requirements of COB 6.4.11 R and COB 6.4.12 R override the relevant requirement in COB 6.2 (Provision of key features), where there is conflict.

01/12/2001

COB 6.4.11

When a private customer makes a series of elections within a period of 12 months to make income withdrawals, the firm that is personally recommending, arranging or effecting the elections may provide one combined set of key features, for those elections, or may provide separate sets of key features for elections which relate to life policies and schemes.

01/12/2001

COB 6.4.12

At intervals no longer than 12 months from the date of an election by a private customer to make income withdrawals, the relevant product provider must:

(1) provide the private customer with such information required by COB 6.6.13 R as will enable the private customer to review the election; and
(2) inform the private customer how to obtain advice on investments in respect of his income withdrawals, and that it would be in his best interests to do so.

01/12/2001

Cash deposit ISAs and cash deposit CTFs

COB 6.4.13

When a firm manages, personally recommends or sells a cash deposit ISA or cash deposit CTF to a private customer, that customer must be provided with the information specified in whichever of COB 6.5.42 R or COB 6.5.42A R applies to it in good time before the customer is bound by the transaction, unless COB 6.4.27 R to COB 6.4.31 R (telephone sales and other exemptions) applies.

09/10/2004

Traded life policies

COB 6.4.14

When a firm personally recommends that a private customer should purchase a traded life policy, the customer need not be provided with key features, if the firm instead supplies the information in COB 6.5.44 R in good time before the customer is asked to complete any form of application or authority giving effect to the purchase of the traded life policy.

09/10/2004

Stakeholder pension schemes

COB 6.4.15

When a firm sells, manages, personally recommends or arranges the sale of a stakeholder pension scheme to or for a private customer, the firm must, subject to COB 6.4.18 R and unless COB 6.4.27 R to COB 6.4.31 R (telephone sales and other exemptions) applies, provide the private customer with key features before the private customer completes an application for the stakeholder pension scheme.

09/10/2004

COB 6.4.16

When a firm proposes to deal with a private customer on the telephone for the purposes of providing information through a decision tree about stakeholder pension schemes, the firm may do so only if it has adequate evidence to show that the private customer has access to a copy of a decision tree (as specified in COB 6.5.8 R) during the conversation.

01/12/2001

COB 6.4.17

COB 6.4.16 R is intended to ensure that, where a firm takes a private customer through the decision tree process by telephone, it takes reasonable care to ensure that the private customer has a decision tree in front of him. For example, on first contact firms could enquire whether the private customer has a decision tree, and if not, send one to him before taking him through the decision tree process during a follow-up telephone call.

01/12/2001

COB 6.4.18

COB 6.4.15 R does not apply to a stakeholder pension scheme operator when its stakeholder pension scheme is sold on the personal recommendation of, or arranged to be sold by, another person, provided that other person:

(1) is a firm (or an appointed representative) operating from an establishment maintained by the firm (or appointed representative) in the United Kingdom; or
(2) is operating from an establishment in an EEA State whose law imposes an obligation on the person to provide information about the stakeholder pension scheme in accordance with articles 3 and 5(1) and (2) of the Distance Marketing Directive.

09/10/2004

COB 6.4.19

(1) When a firm sells, personally recommends or arranges the sale of a new group or master life policy, the first in a series of individual life policies or the first units in a particular scheme to the trustees or the operator of a stakeholder pension scheme, it must provide the trustees or operator with key features, in accordance with COB 6.2.7 R to COB 6.2.25 R.
(2) In COB 6.2 to COB 6.5, for the purposes of (1), the firm must treat trustees and operators as private customers.

09/10/2004

COB 6.4.20

The illustrative figures within the key features provided under COB 6.4.19 R can be on an example basis, using a range of representative actual or hypothetical scheme members (covering, for example, different ages, sexes and salaries), so that the trustees or operator can assess the effectiveness of the investment for scheme members.

01/12/2001

COB 6.4.21

When a firm provides a private customer with information through a decision tree concerning membership of a stakeholder pension scheme, but does not give advice on investments or make a personal recommendation, the firm must provide the private customer with a written notice in accordance with COB 6.4.22 R and COB 6.4.23 R.

01/12/2001

COB 6.4.22

A written notice required by COB 6.4.21 R must be provided by the firm no later than 8 business days after the cancellation period commences.

09/10/2004

COB 6.4.23

The notice in COB 6.4.22 R must:

(1) confirm that no advice on investment has been given and that the private customer has decided that the stakeholder pension scheme is appropriate as a result of the answers he has given to the questions posed in the decision tree; and
(2) include a copy of the decision tree indicating the answers which the private customer has given.

01/12/2001

COB 6.4.24

After giving information through a decision tree in accordance with COB 6.4.16 R and before the customer completes the application, a firm could satisfy COB 6.4.15 R by providing an adequate oral explanation (for example over the telephone in the case of a call-centre) about the main features of the stakeholder pension scheme (as outlined in COB 6.2.11 G). Written key features must then be given or sent along with the copy decision tree in accordance with COB 6.4.21 R -COB 6.4.23 R within five business days.

01/12/2001

Entering into a distance contract for accepting deposits (other than a cash deposit ISA)

COB 6.4.25

(1) A retail customer must be provided with all the contractual terms and conditions and the information in COB App 1 in a durable medium in good time before he is bound by a distance contract or offer under which the firm will accept deposits (other than a cash deposit ISA, for which see COB 6.5.42 R), unless an exemption in COB 6.4.27 R to COB 6.4.31 R (telephone sales and other exemptions) applies.

09/10/2004

Exemption: telephone sales

COB 6.4.27

(1) Where this chapter requires key features or other information to be provided, in the case of voice telephony communications, a firm:

(a) must provide the customer at the beginning of the telephone conversation with the name of the firm and (if the call is initiated by the firm) the commercial purpose of the call;
(b) provided the customer gives his explicit consent to receiving only limited information, may proceed on the basis of at least the following information:

(i) the name of the person in contact with the customer and his link with the firm;
(ii) a description of the main characteristics of the service;
(iii) the total price to be paid by the customer to the firm for the service, including all related fees, charges and expenses, and all taxes paid through the firm together with a statement, where relevant, that commission or remuneration will be paid to the adviser or representative, or, where an exact price cannot be indicated, the basis for the calculation of the price enabling the customer to verify it;
(iv) where relevant, notice of the possibility that other taxes or costs may exist that are not paid through the firm or imposed by it;
(v) the existence or absence of a right to cancel the service under COB 6.7 and, where there is such a right, its duration and the conditions for exercising it, including information on the amount which the customer may be required to pay if the contract is terminated early or unilaterally under its terms, as well as the consequences of not exercising it; and
(vi) that other information is available on request, and the nature of that information, and
(vii) in addition to (a) and (b) above, where the product is a CTF, provided the customer gives his explicit consent to receiving only limited information, may proceed on the basis of the information referred to in COB 6.5.40 R (7) given orally.

(2) If the customer does not give his explicit consent to receiving limited information, and the parties wish to proceed by telephone, the firm must prior to the conclusion of the contract provide all of the information required by COB App 1 orally to the customer.
(3) In the case of either (1) or (2), the firm must send the private customer immediately after the contract is concluded, the required key features or other information (as applicable) in a durable medium.

09/10/2004

COB 6.4.28

Firms are reminded of the requirements in COB 3.8.21 G (Real time financial promotions) and COB 3.10 (Unsolicited real time financial promotions) in relation to telephone calls that may fall within the definition of a financial promotion. Firms are also reminded that in relation to a stakeholder pension scheme COB 6.4.16 R continues to apply.

09/10/2004

Exemption: certain other means of distance communication

COB 6.4.29

This exemption applies where this chapter requires a key features or other information to be provided in relation to a distance contract, if the distance contract is concluded at the customer's request using a means of distance communication (other than telephone) which does not enable provision of the information in a durable medium before the customer is bound by the contract or offer. In that case, the firm must provide key features or other information to the customer in a durable medium immediately after the conclusion of the contract.

31/10/2004

Exemption: successive or separate operations under an initial service agreement

COB 6.4.30

This exemption applies where this chapter requires a key features or other information to be provided in relation to a distance contract, if the firm has an initial service agreement with the customer and the contract is in relation to a successive operation or a separate operation of the same nature under that agreement (see COB 1.10.2 G (1)).

31/10/2004

Exemption: other successive and separate operations

COB 6.4.31

This exemption applies where this chapter requires a key features or other information to be provided in relation to a distance contract, if:

(1) the firm has no initial service agreement with the customer:
(2) the firm has performed an operation for the customer within the last year: and
(3) the contract is in relation to a successive operation or separate operation of the same nature (see COB 1.10.2 G (2)).

09/10/2004

COB 6.4.32

At each anniversary of the date on which a long-term care insurance contract which is based on single premium investment bonds was entered into, the insurer must:

(1) provide the private customer with a table based on the format of COB 6.5.24 containing at least the current fund value and projected future policy values (as in column "What you might get back");
(2) where it is the case, inform the private customer of the possibility that future policy values may be insufficient to fulfil the original purpose of the contract; and
(3) inform the private customer how to obtain advice on investments in respect of long-term care insurance contracts, and that it is in his best interest to do so.

01/12/2001

COB 6.4.33

In the case of a long-term care insurance contract in which:

(1) long-term care benefits are available after commencement of the policy at the option of the policyholder; and
(2) as a result of the exercise of that option a new contract of insurance is offered to the policyholder;

provision is made in TC 2.5.5A R so that, in respect of the contract containing the option, an employee, although engaged in advising on long-term care insurance contracts need not be required to pass an appropriate examination for long-term care insurance contracts to do so.

01/12/2001

Exemption: Revenue allocated accounts

COB 6.4.34

When a firm opens a Revenue allocated CTF, the firm must send the private customer on the first available opportunity after the account has been opened, whichever of the key features or other information is required in a durable medium.

01/12/2001

COB 6.4.35

In considering what the first available opportunity mentioned in COB 6.4.34 R is, firms may take into account that there may generally be a delay between a Revenue allocated CTF being opened and the customer being informed that it had been opened.

01/12/2001

COB 6.5

Content of key features and important information: life policies, schemes, ISA and CTF cash deposit components and stakeholder pension schemes

01/12/2004

Application

COB 6.5.1

COB 6.5 applies in accordance with COB 6.1.1 R.

01/12/2001

General

COB 6.5.2

A firm must ensure, unless COB 6.5.3 R applies, that:

(1) the key features it produces for a packaged product other than a stakeholder pension scheme includes the information required by COB 6.5.11 R, set out in the order shown divided by appropriate and prominent sub-headings, some of which are prescribed in the rules;
(2) the information it produces under COB 6.4.13R (1) for a cash deposit ISA or cash deposit CTF complies with whichever of COB 6.5.42 R or COB 6.5.42A applies to it;
(3) the information document or abbreviated form of key features it produces:

(a) relating to friendly society tax exempt policies or traded life policies contains the applicable information specified in COB 6.5.43 R- COB 6.5.44;
(b) relating to broker funds contains the applicable information in COB 6.5.45;

(4) the post-sale confirmation document it produces contains the applicable information specified in COB 6.5.46 R;
(5) the key features it produces or issues for a stakeholder pension scheme:

(a) includes the relevant sub-headings set out at COB 6.5.11 R, the applicable information specified in COB 6.5.12 R - COB 6.5.40 R appropriate to those sub-headings; and
(b) is, subject to COB 6.5.6 R, accompanied by or includes the decision trees specified in COB 6.5.8 R, unless the stakeholder pension scheme is being purchased as a result of a personal recommendation; and

(6) all:

(a) key features; and
(b) abbreviated key features mentioned at COB 6.5.2 (3)(a) above,

it produces in relation to a distance contract with a retail customer include or are accompanied by all the contractual terms and conditions and the information in COB App 1 except to the extent that they are separately provided to the retail customer in a durable medium in good time before the retail customer is bound by the contract or offer.

09/10/2004

COB 6.5.3

A firm may adapt the prescribed content and format requirements in COB 6.5 only when it can demonstrate that this is necessary to reflect the terms and nature of a particular product and that, in relation to a distance contract with a retail customer, in doing so it does not omit the contractual terms and conditions and information in COB App 1.

09/10/2004

COB 6.5.4

(1) Where the rules in COB 6.5 do not require the use of prescribed text, firms may give the relevant information using their own words and style.
(2) For the purposes of COB 6.5.2 R (1):

(a) a firm which offers more than one scheme may choose whether to produce separate key features for each scheme (including a fund or sub-fund or share class), or to produce a single key features to cover a range of funds (provided the differences between those funds are made clear);
(b) where a publication covers more than one scheme (for example, in the case of a year book comprising information on all the funds offered by a unit trust manager), it might consist of a key features section at the beginning giving details common to all the relevant funds (whether unit trusts, ICVCs, sub-funds of an umbrella scheme or share classes within an ICVC), followed by separate pages setting out, for each fund, those items which are specific to it, for example 'Aims', 'Risk Factors' and 'Charges and their Effect'.

01/12/2001

Stakeholder pension schemes: decision trees

COB 6.5.5

There is no obligation to supply a decision tree as specified in COB 6.5.8 R where a firm has personally recommended a stakeholder pension scheme to a private customer. Firms may wish to supply a copy of any decision tree used as part of the advice process along with the mandatory suitability letter.

01/08/2002

COB 6.5.6

Where a firm knows that a certain decision tree or trees will not be relevant to a private customer to whom key features are to be given, the firm can omit them and include only the relevant decision tree or trees.

01/12/2001

COB 6.5.7

There are three versions of the decision trees for employed persons, the self-employed and those not in employment. The specified introductory text is a required part of each decision tree. Firms are permitted to issue one decision tree, consisting of the introductory text and the relevant version of the flowcharts, where the employment status of the customer is known. In other circumstances, the introductory text and all three versions of the flowcharts should be included. This guidance applies whether decision trees are within the key features or are used separately.

01/12/2001

COB 6.5.8

(1) Whether a firm produces decision trees within or separate from key features, it must (unless COB 6.5.9 R applies and subject to COB 6.5.8A R) reproduce the text, content and format set out in COB 6 Annex 1.
(2) If COB 6 Annex 1 is subsequently amended:

(a) the firm must amend its decision trees as soon as reasonably practicable and, in any case, within three months of the date when the amendments to COB 6 Annex 1 come into force; and
(b) the firm may continue to use decision trees that complied with the previous version of COB 6 Annex 1 until it has done so.

01/08/2002

COB 6.5.8A

A firm must ensure that its decision trees include:

(1) (in the place in the relevant table in the Further information text at COB 6 Annex 1 where the square brackets appear):

(a) in the heading of the table, the current tax year; and
(b) the Basic State Pension rates and Pension Credit minimum income rates for the current tax year;

(2) (where the square brackets appear) at the bottom of the cover page and at the bottom of each page of the flow charts, the current tax year; and
(3) (where the square brackets appear) in the introductory text where additional explanatory text within Further information is signposted, the appropriate page number.

01/05/2004

COB 6.5.8B

(1) A firm must, subject to (2), make the changes required by COB 6.5.8A R as soon as reasonably practicable and, in any case, within three months of the start of the tax year.
(2) Where, in any year, a firm is required to make changes to the trees under COB 6.5.8 R and COB 6.5.8A R, it may make both sets of changes at the same time, provided that it does so within the time limits in COB 6.5.8 R (2)(a).

01/08/2002

COB 6.5.8C

(1) The FSA expects to review the decision trees once each year and will amend them as necessary as near as possible to the start of the new tax year. The amended version of the decision trees will be published on the FSA's web-site and available in printed form when the rules are amended each year. Firms must bring their trees into line with the amended rules within three months, but may continue to use their "old" trees until they have done so.
(2) Firms are required, by COB 6.5.8A R, to insert the Basic State Pension rates and Minimum Income Guarantee rates for the current tax year into the relevant table in the introductory text to their decision trees each year and to identify the relevant year in the heading of the table and also at the bottom of the pages specified in COB 6.5.8A R (2). The rules require firms to do this within three months of the start of the tax year if no other changes to the trees are required. However, COB 6.5.8B R (2) allows them to delay updating the Basic State Pension and Minimum Income Guarantee rates until the same time as they make any other amendments to their trees which they are required to make under COB 6.5.8 R, provided that they do so within no more than three months of the date when those amendments come into force.
(3) The appropriate rates will be those announced by the Government (usually, but not necessarily, in the Chancellor of the Exchequer's annual Budget) as applying to the tax year in question. The relevant Basic State Pension and Minimum Income Guarantee rates for the current tax year will be included in the version of the trees published by the FSA.

01/08/2002

COB 6.5.8D

A firm must ensure, subject to COB 6.5.8 R (2), that it uses only the most recent version of its decision trees.

01/08/2002

COB 6.5.8E

Where a firm makes use of both electronic and hard copy versions of the decision trees specified in COB 6.5.8 R, it must synchronise the timing of any changes to those trees as far as reasonably practicable.

01/08/2002

COB 6.5.8F

Firms are expected to ensure that they make the necessary changes to all of their trees at the same time (or as close to the same time as possible), including those used by other organisations for which they are responsible, in order to minimise the risk of consumer confusion. This may mean delaying changes to the trees in some instances until the firm is able to make all of the required changes, but all of a firm's trees must be amended within the time period allowed.

01/08/2002

COB 6.5.9

The only adaptations, other than those in COB 6.5.8A R - COB 6.5.8E R, that a firm may make to the decision trees specified in COB 6.5.8 R are those suitable to brand the decision tree with the corporate image of the firm, to reflect the design of its stakeholder pension scheme promotional material or to reflect the use of interactive delivery.

01/08/2002

COB 6.5.10

(1) There is a limited scope within COB 6.5.9 R to depart from the prescribed decision tree format and content in order to blend in the trees with other promotional materials such as key features or internet financial promotions. However, the text and general design should follow the prescribed content and format. Firms will be aware that the FSA publishes its own version of the decision trees for public use: firms may consider them as examples of acceptable design.
(2) Examples of items and formatting where no adaptations should be made include:

(a) the text - both content and order, whether in the introduction, the boxes within the flowcharts, or any other sections of the decision trees;
(b) the use of boxed items within the introductory text;
(c) the use of emphasis (firms can choose the method of giving emphasis, such as size, bold or italic text);
(d) the vertical flow and pagination of the flowcharts within the decision trees;
(e) the boxes within the flowchart pages, these should be rectangular and filled with one consistent colour, except that two tints of the base colour may be used to highlight tick boxes and to differentiate columns of figures;
(f) the directional arrows linking the boxes within flowchart pages, these should be of one design and the same colour as fills the flowchart boxes.

(3) Examples of items where adaptations can be made include:

(a) the typeface and font size of the text;
(b) the pagination of the introductory text and the use of columns;
(c) the edging of boxes (for example, use of shadow or rounded corners);
(d) the use of background colours, for example, to match corporate colours or product brochures (see (2)(e));
(e) separate colour schemes to differentiate between sets of decision trees, for example between employed and self-employed versions;
(f) the use of an extra colour to highlight headings within flowchart pages and to identify separate versions of the decision trees;
(g) the size of paper used (A4 is recommended, but other sizes are possible, provided that the flowchart pages are clear and legible);
(h) where delivery is through an interactive computer-based system, the wording of the introductory text that explains how to use the decision trees.

01/12/2001

COB 6.5.11

Table of Information/Applicable provisions

This table belongs to COB 6.5.2 R (1)

Information

Applicable provisions

Title

COB 6.5.12 R

Nature of life policy or scheme or stakeholder pension scheme

COB 6.5.13 R - COB 6.5.14 G

An example

COB 6.5.15 R - COB 6.5.19 R

Description of the life policy or scheme or stakeholder pension scheme

COB 6.5.20 R

Tables:

Life policies
Schemes

COB 6.5.23 R - COB 6.5.26 R
COB 6.5.30 R - COB 6.5.32 R

Deductions summary:

Life policies
Schemes

COB 6.5.27 R - COB 6.5.29 R
COB 6.5.33 R - COB 6.5.36 G

Commission and remuneration

COB 6.5.38 R - COB 6.5.39 G

Further information

COB 6.5.40 R

01/12/2001

Title

COB 6.5.12

A firm must include this heading: 'key features of the [name of life policy/ scheme /stakeholder pension scheme]'.

01/12/2001

Nature of life policy or scheme or stakeholder pension scheme

COB 6.5.13

(1) A firm must describe the nature of the life policy or scheme or stakeholder pension scheme under the following headings: 'its aims', 'your commitment', or, 'your investment' (whichever is more appropriate) and 'risk factors'.
(2) Under 'risk factors' a firm must give a brief description of the factors which may have an adverse effect on performance or are otherwise material to the decision to invest.

01/12/2001

COB 6.5.14

The description which a firm is required to provide under 6.5.13R(2) might include information on the matters set out in the following non-exhaustive list:

(1) whether the value of the capital and any income from it might fluctuate;
(2) cancellation issues, including the fact that, if the value of the investment falls before notice of cancellation is given, a full refund of the original investment may not be provided but rather the original amount less the fall in value;
(3) particular risks, if any, associated with the underlying assets in which the packaged product is invested;
(4) risks associated with the markets in which investments will be made, with particular reference to emerging markets; such risks might include dealing difficulties, settlement and custody practices;
(5) special risks such as capital erosion or constraints on capital growth in the case of funds where charges are deducted from capital, or where buying income or dividend stripping forms part of the investment strategy;
(6) volatility, in particular with regard to higher volatility funds such as geared futures and options schemes and warrant schemes and the fact that the loss on realisation of the investment could be very high, even equalling the amount originally invested;
(7) the inclusion of a 'market value adjustment' in respect of with-profits funds, and the risk that, in adverse circumstances, benefits could be reduced;
(8) potential problems with investment in property in respect of liquidity, and the fact that repurchase or surrender might be delayed during a period when the property is not readily saleable, and that property valuation is a matter of judgement by a valuer;
(9) in the case of a broker fund, whether the private customer has the right, or may be required, to transfer out of that fund to any other fund or scheme of a firm; if so, the name of the fund or scheme, the transfer terms and the circumstances in which, and by whom, such a transfer may be required or made;
(10) the risk that a current favourable situation may not be maintained in future, for example the tax treatment of ISAs;
(11) the fact that if the private customer does not maintain contributions he may not meet any target benefit which has been projected and may lose the benefits of any life protection;
(12) in the case of a new fund, the risk that, if its assumed size is not achieved, the proportion of charges and expenses allocated to the investment may be higher and the value of the investment consequently reduced;
(13) the fact that there is no guarantee that a life policy such as an endowment assurance used to repay an interest-only mortgage will produce sufficient funds at the end of the mortgage term and that the amount the investor will have to continue to pay may need to increase to achieve repayment of the loan;
(14) the fact that with personal pensions there may be penalties if the private customer takes the benefits before the stated retirement date;
(15) in the case of a guaranteed packaged product, where it is a possibility, the fact that there may be a capital shortfall at the end of the contract; where there is a fixed regular payment of income, it should be drawn to the attention of the private customer that such payments often involve a risk to capital;
(16) for a security or an investment trust savings scheme which satisfies the conditions specified in COB 3.8.9 G (6), the fact that the investment may be subject to sudden and large falls in value and that the private customer may get back nothing at all if the fall in value is sufficiently large;
(17) guarantees or other actual or potential liabilities, and their effect or potential effect, whether they are attributable to:

(a) the contractual terms and benefits of the packaged product which the private customer is or may be acquiring; or
(b) the contractual terms and benefits of any of the product provider's other products; or
(c) the business activities of the product provider or its associates;

if they have or may have a material adverse effect on the returns to the private customer or are otherwise material to his decision to invest; and
(18) in the case of a long-term care insurance contract which is based on single premium investment bonds, the fact that the income produced by the bonds may be insufficient to continue to meet the premiums of the underlying contract of insurance. The description could also explain the consequences of this, including, if it is the case, that capital may be eroded, further single premium may be payable, or the cover reduced.

01/01/2004

An example

COB 6.5.15

A firm must include a projection, illustrating how the principal terms of the proposed transaction apply to the private customer:

(1) where the proposed transaction is for a life policy other than:

(a) a long-term care insurance contract which is a pure protection contract;
(b) a linked life stakeholder product.
(c) one that relates to a CTF or a stakeholder product sold through basic advice,

(2) where the proposed transaction does not relate to a CTF or a stakeholder product sold through basic advice and is for a scheme or a linked life stakeholder product:

(a) and relates to an election to make income withdrawals; or
(b) where the private customer's primary objective is to acquire;

(i) a specified sum of money on a specified date; or
(ii) a specified sum of money on death; or
(iii) an annuity of a specified amount payable as from a specified date.

31/10/2004

COB 6.5.16

A projection may be included for schemes where COB 6.5.15 R (2) does not require one, at a firm's discretion.

01/12/2001

COB 6.5.16A

A projection is not appropriate for a long-term care insurance contract which is a pure protection contract. Policy benefits and premiums must be illustrated in accordance with the relevant provisions of COB 6.5.49 R.

31/10/2004

COB 6.5.17

Where the proposed transaction is for a stakeholder pension scheme, a specimen projection will have been included in the decision tree. There is no requirement in these rules for a personalised projection in the key features for a stakeholder pension scheme. Where projections are given for stakeholder pension schemes in other circumstances, for example where a scheme member requests a personalised projection, they should follow the standard projection rules in COB 6.6 (Projections).

01/11/2002

COB 6.5.18

(1) All projections included in key features, except a specimen projection in a decision tree for a stakeholder pension scheme, must be calculated in accordance with COB 6.6 (Projections), using the lower, intermediate and higher rates of return in COB 6.6.50 R, and followed by the appropriate statements form COB 6.6.15 R.
(2) In addition, if the projection in (1) is for a pension scheme or a stakeholder pension scheme, a firm may also include a type P projection in the key features (see COB 6.6.34 R (5)). The pension must assume increases linked to the retail prices index using the appropriate intermediate rate in COB 6.6.51 R.

01/12/2001

COB 6.5.19

(1) A life policy projection in key features must be specific to the private customer, calculated on the basis of the private customer's age and sex, the sum assured, the premium and other principal factors of the proposed life policy unless:

(a) the life policy is a single premium life policy; or
(b) the total premiums payable do not exceed £120 a year (or £130 a year if the premiums are paid every four weeks); or
(c) the total premiums are less than £1,000; or
(d) the key features are part of a direct offer financial promotion.

(2) If (1)(a), (b), (c) or (d) applies and no customer specific projection is included, a projection must be provided which typically represents the type of business which the firm conducts (or proposes to conduct) in relation to the life policy in question.
(3) A scheme projection in key features must be based on either:

(a) the actual amount which the private customer is proposing to invest; or
(b) an amount which typically represents the type of business which the firm conducts (or proposes to conduct) in relation to the scheme in question;

unless it is for income withdrawals, when it must be on the basis of (a).

01/12/2001

Description of the life policy or scheme or stakeholder pension scheme

COB 6.5.20

In addition to COB 6.5.13 R and COB 6.5.18 R, a firm must set out in the form of questions and answers a description of the principal terms of the life policy, scheme, or stakeholder pension scheme, and any other information necessary to enable the private customer to make an informed decision.

01/12/2001

COB 6.5.21

The information required by COB 6.5.20 R should include:

(1) for a life policy such as an endowment which is being used to repay an interest-only mortgage loan, details of how and when the private customer will be notified whether the life policy is on target to provide sufficient funds to repay the loan and, if it is not, what options the private customer has;
(2) for a life policy, the consequences of making the life policy paid up or taking a contribution holiday;
(3) for an FSAVC, a prominent warning that, as an alternative, a scheme AVC exists which may offer better terms, details of which can be obtained from the occupational pension scheme administrator;
(3A) for a long-term care insurance contract, information to make policyholders aware of the importance of:

(a) regularly reviewing their circumstances and the likely costs of long-term care with a view to ensuring that their long-term care needs continue to be appropriately covered; and
(b) seeking advice in the event of change affecting the policyholder's long-term care needs, or in the event of a variation of the contract terms so as to provide long-term care benefits;

(3B) for a long-term care insurance contract in which the insurer has the right to review the premium:

(a) a statement of that fact, the frequency of any right to vary the premium payable and a description of the circumstances which would give rise to a variation of the premium, for example, a change in claims experience;
(b) a statement of the consequences of not paying any increased or extra premium resulting from any review, such as a reduction in policy benefits;
(c) a statement of the rate of investment return assumed in the premium calculation together with a note of each other main assumption subject to variation;
(d) a statement that the higher the assumed rate of investment return, the greater the chances of being asked to pay increased or extra premiums following a premium review;
(e) if the rate of investment growth assumed in the premium calculation is more than the intermediate rate shown in COB 6.6.50 R, an illustration of the potential increased regular premium or additional single premium that may be payable following the first premium review, assuming that the rate of investment return achieved up to the review and assumed thereafter was at the intermediate rate shown in COB 6.6.50 R;

(3C) for a long-term care insurance contract in which long-term care benefits are available after commencement of the policy at the option of the policyholder, a statement of the amount of premium payable for that option. Where any change to the level of cover requires further underwriting this should, where possible, be made clear at the outset.
(4) for a long-term care insurance contract which is based on single premium investment bonds -

(a) a statement drawing attention to the possible effect on the capital invested where withdrawals are taken to pay for care; this can be communicated by including a standard, non-client-specific, example comparing the effect of claim payments on the value of the life policy, first assuming no claims and then assuming a claim beginning at age 80 and lasting for five years; the standard mid rate of return should be used assuming claim payments at the highest benefit level payable under the life policy; and
(b) information to make the private customer aware that he can use key features to compare the investment potential of different product providers' packaged products, for example surrender values at various times and the effect of deductions;

(5) for a personal pension scheme, including a group personal pension scheme, a clear and prominent indication of the general availability of stakeholder pension schemes and the fact that these might meet the consumer's needs at least as well as the personal pension scheme on offer;
(6) for a stakeholder pension scheme, a description of the default investment option offered under regulation 3(5) of the Stakeholder Pension Schemes Regulations 2000;
(7) for an individual pension account:

(a) where the key features relate to a stakeholder pension scheme or personal pension scheme and the firm chooses to highlight, within key features or elsewhere, that the investment will be made through an IPA, a statement:

(i) identifying by name any IPA eligible investments which are to be or may be held as assets of the stakeholder pension scheme or personal pension scheme; and
(ii) indicating which of those assets will benefit from the Stamp Duty Reserve Tax exemption available to IPA's;

(b) where the firm is acting as an operator or distributor of a regulated collective investment scheme or investment trust savings scheme and elects to include within key features a statement that some or all of the investments are IPA eligible investments, an indication in respect of each such investment whether pension scheme members will benefit from the Stamp Duty Reserve Tax exemption available to IPA's.

(8) for a life policy or a scheme which is to be held within a CTF the information referred to in COB 6.5.40 R (7).

20/09/2001

Tables and deductions summaries for life policies, schemes and stakeholder pension schemes

COB 6.5.22

(1) COB 6.5.23 R - COB 6.5.29 R set out the Tables, Deductions Summary and method of calculating the 'Effect of deductions to date' for life policies.
(2) COB 6.5.30 R - COB 6.5.36 G set out the Tables, Deductions Summary and method of calculating 'Effect of deductions to date' for schemes.
(3) COB 6.5.37 R outlines a simplified illustration of charges for stakeholder pension schemes. There is no requirement for the tables of figures or the reduction in yield summary required for life policies or schemes.

01/12/2001

Tables for life policies

COB 6.5.23

For life policies which can have a surrender value, a firm must include the contents of COB 6.5.24 R unless COB 6.5.28 R applies.

01/12/2001

COB 6.5.24

The early years

This table belongs to COB 6.5.23 R

The early years

WARNING - if you cash in during the early years you could get back less than you have paid in.

The last two columns assume that investments will grow at [insert the intermediate rate appropriate to the type of life policy set out in COB 6.6.50 ] a year.

At end of year

Total paid in to date

[Total actual deductions to date]

Effect of deductions to date

What you might get back

The later years

Notes: The column headed 'Total actual deductions to date' is optional. If included, it must follow the requirements in COB 6.5.23 - COB 6.5.29. In the case of a Holloway sickness policy, an indication of the total cost of risk benefits expressed as a figure in £s may be given by way of a footnote to the column headed 'Effect of deductions to date'.

01/12/2001

COB 6.5.25

When completing COB 6.5.24 R, a firm must:

(1) under the heading 'the early years' include figures for the first five years of the life policy or, if the life policy has a fixed term of less than five years, as many of them as fall before the maturity date;
(2) under the heading 'the later years' include figures for the tenth and every subsequent fifth year of the term of the life policy (or of the contract period as defined in COB 6.6.25 R if that is shorter) and for the final year, except in the following cases:

(a) for a whole-life policy, figures must be included for every tenth year and:

(i) the final year, assuming that the life policy will continue (unless and until converted to a fixed term) until the insured life (or the youngest insured life) attains the age of 75 years or to a term of ten years if that is later; or
(ii) the year in which the projected fund reaches zero if earlier than (i); the consequences of this must be drawn to the private customer's attention;

(b) in the case of a single premium life policy with no fixed term, a term of ten years should be assumed, but figures for a longer term may be shown in addition;
(c) for a ten-year life policy, the figures for the final year may be included in the 'early years' table;
(d) for a personal pension policy with income withdrawals, there is an option to quote figures for the sixth year and at three-yearly intervals thereafter; and
(e) where there is any significant discontinuity in the trend of surrender or transfer values, figures should be given for all the intervening years.

(3) in the 'Total paid in to date' column, include cumulative totals of premiums paid (making adjustment as necessary to take account of any automatic premium changes);
(4) in the 'Total actual deductions to date' and 'Effect of deductions to date' columns, include the cumulative sum of the charges and expenses (as defined in COB 6.6.23 R) and the cost of any protection benefits expected to be levied against the life policy; they must be calculated in accordance with COB 6.5.29 R;
(5) in the 'What you might get back' column, include projections of surrender values for the life policy:

(a) these must be calculated in accordance with COB 6.6.38 R (projections of surrender values) assuming the premium and any other relevant matters given for the purposes of COB 6.5.13 R (Nature of policy) and COB 6.5.15 R (An Example);
(b) the surrender value of a premium on a particular date must be calculated by assuming that any premium payable on that date is payable on the following day; and
(c) where any surrender values are guaranteed they must be provided with a suitably adjusted heading and introductory text;

(6) where the life policy is a personal pension, replace 'What you might get back' with 'What the transfer value might be' and make suitable amendments to the explanatory text; for a personal pension policy with income withdrawals it must be replaced with 'Open market value';
(7) where the private customer is entitled to exercise and has chosen, or expressed the intention, to exercise the right to make partial surrenders, include a column headed 'Withdrawals' or, in the case of a personal pension with income withdrawals, 'Total income taken'; the sum of withdrawals must be shown;
(8) for a personal pension with income withdrawals, include a table headed 'What effect will the deductions have?' instead of 'The early years' and 'The later years'; where there is any charge or penalty in calculating the open market value, all the years to which this applies should be given; and
(9) in the case of a long-term care insurance contract based on single premium investment bonds, where the standard ten-year table does not illustrate adequately how the charges taken from a policy can increase considerably with age:

(a) the table must be extended to show figures at ten-year intervals and the year in which the private customer attains 100 years or the year the fund is exhausted if earlier; but
(b) the standard ten-year figure must be used for the reduction in yield and the accompanying words amended accordingly.

01/12/2001

COB 6.5.26

COB 6.5.23 R - COB 6.5.25 R do not apply to a life policy which will never have a surrender value; the following warning must be given instead of the tables: 'WARNING - this policy has no cash-in value at any time'.

01/12/2001

Deductions summary for life policies

COB 6.5.27

The following statements must appear beneath the information required by COB 6.5.23 R, unless COB 6.5.28 R applies:

(1) 'What are the deductions for?'
(2) 'The deductions include [the cost of life cover, sickness benefits,] [commissions/remuneration,] expenses, charges, any surrender penalties and other adjustments.'
(3) 'The last line in the table shows that over the full term of the policy the effect of the total deductions could amount to £x.'
and then either:
(4) 'Putting it another way, leaving out the cost of life cover [and sickness benefits] this would have the same effect as bringing investment growth from x% a year down to y% a year.' or
(5) 'Putting it another way, if the growth rate were to be x%, which is in no way guaranteed, this would have the effect of reducing it to y% a year.'

01/12/2001

COB 6.5.28

The information relating to 'Total actual deductions to date' and 'Effect of deductions to date' in COB 6.5.23 R, and the information relating to reduction in yield required by COB 6.5.27 R, do not need to be given for the following categories of life policy:

(1) a without-profits life policy of which the benefits, except on surrender or variation, are guaranteed benefits;
(2) a life policy for a term not exceeding five years; and
(3) a life policy held within a CTF.

01/12/2001

Calculation method for 'effect of deductions to date' for life policies

COB 6.5.29

In COB 6.5.24 R the 'Total actual deductions to date' and the 'Effect of deductions to date' must be calculated for each of the years detailed in COB 6.5.25 R. These are the amounts of all deductions that are expected to be levied against the assets and premiums in respect of charges and expenses (as defined in COB 6.6.23 R), and surrender penalties, as well as allowance for the cost of risk benefits (defined in COB 6.6.28 R) to the end of the year. They must be calculated as follows.

(1) The premiums must be accumulated at the intermediate rate prescribed in COB 6.6.49 R for the category of life policy to which the key features relates (the 'prescribed rate'), making no allowance for charges and expenses and other deductions.
(2) 'Effect of deductions to date' must be derived by subtracting the amount shown in the column 'What you might get back' from premiums accumulated in accordance with (1).
(3) The figures in the column 'Effect of deductions to date' must reflect the charges and expenses accumulated at the prescribed rate. The column headed 'Total actual deductions to date' must show the sum of actual deductions.
(4) The deductions for each year must be calculated by subtracting from the 'Effect of deductions to date' for that year the 'Effect of deductions to date' for the previous year (if any), increased by the amount of interest for the year calculated at the prescribed rate.
(5) 'Total actual deductions to date' is the sum of the figures derived in accordance with (4) for the year in question and all previous years; where it is negative, nil must be shown for that year.

01/12/2001

Table for schemes

COB 6.5.30

For schemes, a firm must include the contents of COB 6.5.31 R unless the scheme is to be held within a stakeholder CTF.

01/12/2001

COB 6.5.31

This table belongs to COB 6.5.30 R

How will charges and expenses affect my investment?

[Give an indication of the nature and amount or rate of the charges and expenses which the private customer will or may bear, including any relevant proportion of scheme charges deducted directly from the fund or not directly attributed to the account of the private customer. In describing the nature of charges state how the charges will be made, in particular whether they will be taken from capital or income. Include a statement that dealing costs are not included.]

[Give a statement that there is a buying price and a selling price (if that is the case) and that the difference between them is called the 'spread', and an indication of where up-to-date information may be obtained on these prices.]

Their effect on an investment of £______ assuming growth of [insert the intermediate rate appropriate to the type of scheme (set out in COB 6.6.49 )] a year, is set out below

[Where (except as described in COB 6.5.15 (2) ) a projection is not a requirement, include a statement that the figures are not guaranteed and serve only to demonstrate the effect of charges and expenses on an investment.]

At end of year

Investment to Date

Effect of deductions to date

What you might get back [at the appropriate intermediate rate]

01/12/2001

COB 6.5.32

When including the contents of COB 6.5.31 R, a firm must replace the wording in brackets as directed by the instructions in those brackets and:

(1) when the inclusion of a scheme projection within key features is compulsory in accordance with COB 6.5.15 R (2), include figures calculated in accordance with COB 6.6 (Projections):

(a) at the end of years 1, 3, 5 and 10 and (optionally) for years 2 and 4;
(b) then for each fifth year following the tenth year which falls within the period of the projection; and
(c) the final year of the projection;

(2) when a scheme projection is not required by COB 6.5.15 R (2) but is included at a firm's discretion, include figures at the end of years 5 and 10 and (optionally) for years 1 and 3 or for years 1 to 4, all calculated in accordance with COB 6.6 (Projections);
(3) in the 'Investment to date' column, include:

(a) the actual amount which the private customer is proposing to invest; or
(b) an amount which is representative of the type of business which the firm conducts (or proposes to conduct) in relation to the contract in question;

but where, under COB 6.5.15 R (2), a projection is included in the key features, the amount shown as the 'Investment' must be the same as the amount used as the basis for the projection;
(4) in the 'Effect of deductions to date' column, include the cumulative sum of charges and expenses (as defined in COB 6.6.23 R) for each of the years shown, these figures must be calculated in accordance with COB 6.5.35 R- Calculation Method for Effect of charges to date;
(5) in the 'What you might get back' column, include figures taking account of charges and expenses showing what the value might be if the scheme were cashed in;
(6) where the contract is a personal pension, replace 'What you might get back' with 'What the transfer value might be', and make suitable amendments to the explanatory text; for a personal pension contract with income withdrawals the replacement must be 'Open market value';
(7) include extra columns in the Table in the following cases:

(a) where the private customer is entitled to exercise and has chosen, or expressed the intention, to exercise the right to make partial withdrawals, an extra column must be included headed 'Withdrawals' or, in the case of a personal pension contract with income withdrawals, 'Total income taken'; 'Withdrawals' must include distributions of income;
(b) where the investment involves periodic redemptions at pre-determined intervals to make payments to the private customer, a column headed 'Redemptions' is needed;
(c) where the investment distributes income and does not involve the automatic reinvestment of this income, a column headed 'Income' must be included;

in (a), (b) and (c) the arithmetic sum of the withdrawals or redemptions or income payments must be stated, on the assumption that these are made throughout on the same basis as contemplated at the time the projection was prepared; the method set out in COB 6.6.36 R must be used to calculate distributions of income;
(8) for a personal pension contract with income withdrawals, include in a table under the heading 'What effect will deductions have?' figures for every third year or every fifth year; where there is any charge or penalty in calculating the open market value, all the years to which this applies must be given;
(9) include a statement that allowance for tax relief has been made in the calculation where any tax relief available to the scheme has been taken into account in the calculation of charges and expenses.

01/12/2001

Deductions summary for schemes

COB 6.5.33

The statements in (1) and (2), or in (1) and (3) must appear beneath the information required by COB 6.5.31 R:

(1) 'The last line in the table shows that over [n] years the effect of the total charges and expenses could amount to £x';
(2) 'Putting it another way, if the growth rate were to be (x)%, which is in no way guaranteed, this would have the effect of reducing it to (y)% a year';
(3) 'Putting it another way, this would have the same effect as bringing investment growth from (x)% a year down to (y)% a year'.

01/12/2001

COB 6.5.34

(1) The figure [n] in the prescribed wording in COB 6.5.33 R is the number of years in figures given at the bottom of the table, as appropriate for each transaction.
(2) The 'Investment to date' must be accumulated to the end of [n] years at the relevant rate of return (x)% making full allowance for the charges and expenses (as specified in COB 6.6.23 R).
(3) The rate of return (y)% must be found which, if applied (on a compound basis) to the amounts included in the 'Investment to date' column over the [n] years, without making any allowance for the charges and expenses, would produce the same sum as that calculated in (2).

01/12/2001

Calculation method for 'effect of charges to date' for schemes

COB 6.5.35

For each year, figures must be given for the effect of deductions assuming the fund grows in accordance with a relevant rate of return (as defined in COB 6.6.33 R). These calculations must reflect all deductions (charges and expenses as defined in COB 6.6.23 R) expected to be levied against the fund and against the private customer's investment. The calculations must be made on the basis of the following principles:

(1) for each year the 'Investment' must be accumulated, at the relevant rate of return (as specified in COB 6.6.33 R), to the end of each year, making due allowance for the charges and expenses;
(2) for each year the 'Investment' must be accumulated, at the relevant rate of return, to the end of each year, but making no allowance for the charges and expenses;
(3) the 'Effect of deductions to date' is the amount calculated in (1) subtracted from the amount calculated in (2);
(4) a rate of return which is lower than the relevant rate of return must be used where the firm expects that rate would imply an overstatement of the investment potential; and
(5) the calculations specified in (1) and (2) must allow for any partial encashment of units or shares or distributions of income where under the terms of the scheme the private customer has exercised, or has expressed the intention of exercising, an option to make such encashments or to receive such income or where such encashments or distributions will automatically apply. The allowance must be assumed in accordance with the estimated rate or amount, unless to do so would be inappropriate for that scheme.

01/12/2001

COB 6.5.36

COB 6.5.35 R (5) applies, for example, to money market schemes and bond funds.

01/12/2001

Stakeholder pension schemes

COB 6.5.37

(1) The statement in (2) must appear beneath or within the information required by COB 6.5.20 R.
(2) "There is an annual charge of [y]% of the value of the funds you accumulate. If your fund is valued at £500 throughout the year, this means we deduct [£500 x y/100] that year. If your fund is valued at £7500 throughout the year, we will deduct [£7500 x y/100 that year."

01/12/2001

CTFs and stakeholder products: annual charges

COB 6.5.37A

(1) If a firm imposes one annual charge including expenses, it need not make the detailed disclosures required by COB 6.5.24 and COB 6.5.30; but if it does not make those disclosures, it must instead include either:

(a) the following statement (the last sentence must be included if and only if it is clear at the time of acquisition that the annual charge will reduce to r% after a fixed period):

"There is an annual charge of [y]% of the value of the funds you accumulate. If your fund is valued at £250 throughout the year, this means we deduct [£250 x y/100] that year. If your fund is valued at £500 throughout the year, this means we deduct [£500 x y/100] that year. After ten years these deductions would reduce to [£250 x r/100] and [£500 x r/100] respectively."
or;

(b) the information required by COB 6.5.20.

01/12/2004

Commission and commission equivalent for life policies, schemes and stakeholder pension schemes

COB 6.5.38

A firm must include under the heading 'How much will the advice cost?' either the statement prescribed in (1), (1A) or (1B), as applicable, or the information required by (2):

(1) for life policies (other than long-term care insurance contracts which are pure protection contracts) or stakeholder pension schemes: 'Your adviser will give you details about the cost. The amount will depend on the size of the premium and the length of the policy term. It will be paid for out of the deductions'; or
(1A) for schemes : 'Your adviser will give you details about the cost. The amount will depend on the size of your [use: 'investment' or 'contribution'] [add if appropriate: 'and in the case of regular savings the period for which you make them']. It will be paid for out of the charges'; or
(1B) for long-term care insurance contracts which are pure protection contracts: 'Your adviser will give you details about the cost. The amount will depend on the size of the premium and the length of the policy term.'
(2)

(a) the amount or value in cash terms of the commission or remuneration, and an indication of the timing of these payments; and
(b) a statement that commission or equivalent is paid for out of 'the deductions or charges, if more appropriate' and, if applicable, that the amount will depend on the size of the premium or contribution and the length of the life policy, scheme or stakeholder pension scheme term.

31/10/2004

COB 6.5.39

The information given under COB 6.5.38 R (2) may include the name of the representative to whom the commission or equivalent is to be paid.

01/12/2001

Further information for life policies, schemes, insurance or equity ISAs, PEPs, CTFs and stakeholder pension schemes

COB 6.5.40

A firm must include the following information in the key features, separately or as part of the information required by COB 6.5.2 R:

(1) for life policies:

(a) a clear indication, in one place, of the nature and amount or rate of any charges or expenses which the private customer will or may bear; if charges or expenses are levied in the form of reduced investment, both the method and effect must be clearly explained; in the case of a single premium charge for mortality or morbidity under linked benefit policies, it is sufficient to describe its nature and basis;
(b) the information that Annex III to the Consolidated Life Directive requires to be communicated to policyholders, which is specified in COB 6.5.49 R; and
(c) an explanation how the private customer may obtain further information about compensation arrangements and other matters relating to the life policy;

(2) for all schemes , an explanation that other information about the scheme is available on request and how it may be obtained;
(3) for regulated collective investment schemes and for such investments held within a PEP or an ISA:

(a) a statement where details of the latest estimated distribution yield and buying and selling prices can be found;
(b) in the case of any purchase, how and when the price to be allocated in respect of each payment will be determined;
(c) whether certificates will be issued and, if so, when they will be sent;
(d) how units or shares may be redeemed and when payment on redemption will be made;
(e) the names and addresses of the scheme manager or authorised corporate director, and the names of the trustees, or depositary (if any);
(f) where and how copies of scheme particulars, annual and half-yearly reports and accounts and prospectuses can be obtained;
(g) an explanation of any relevant right to cancel or withdraw, or, where it is the case, that such rights do not apply;
(h) how complaints and queries are dealt with and how further details of compensation arrangements (if any) can be obtained;
(i) a summary of the private customer's potential liability (if any) to income tax and capital gains tax;
(j) whether the private customer has a choice to reinvest income, where uninvested money will be held and whether interest is paid on such money;
(k) for single-priced schemes:

(i) how the scheme may suffer dealing costs as a result of transactions in units; and
(ii) whether it is the authorised fund manager's policy that investors who carry out such transactions may be liable to contribute towards those dealing costs by means of a dilution levy or dilution adjustment, and, if not, an explanation of how this may affect the future growth of the scheme;

(l) in relation to SDRT provision:

(i) how the scheme may suffer stamp duty reserve tax as a result of transactions in units; and
(ii) whether the authorised fund manager's policy is such that an SDRT provision may be imposed;

(m) if there is any arrangement intended to result in a particular capital or income return from the units or shares or any investment objective of giving protection to their capital value or income return:

(i) details of that arrangement or protection;
(ii) for any related guarantee, sufficient details about the guarantor and the guarantee to enable a fair assessment of the guarantee; and
(iii) a description of the risks that could affect achievement of that return or protection including details of what happens when an investment is encashed before the expiry of any related guarantee or protection;

(n) if there is a class of limited issue shares or limited issue units, a summary of the restrictions on the issue and sale of those shares or units.

(4) for investment trust savings schemes and for such investments held within a PEP or an ISA:

(a) when shares will be purchased for the scheme, where uninvested money will be held and whether interest is paid;
(b) where information about the investment trust share price, yield, and premium and discount information can be obtained;
(c) where information about the net asset value and latest dividend can be found;
(d) whether the private customer has a choice to reinvest income, how it is reinvested, or how it is paid to the private customer;
(e) details of any nominees with which shares are registered;
(f) how shares can be sold and how the sale proceeds are determined;
(g) whether applications and payments will be acknowledged and whether contract notes or certificates are issued;
(h) whether there will be a statement of account showing details such as number and cost of shares and balance of cash;
(i) an explanation of any right to withdraw or cancel (as specified in COB 6.7) or, where it is the case, that such rights do not apply;
(j) where the investment trust report and accounts may be obtained;
(k) information about the manager and administrator of the scheme;
(l) the private customer's options in the case of items such as rights issues;
(m) how to stop investing in or how to leave a scheme and the position in respect of the shares held;
(n) terminations or alterations by the scheme manager;
(o) taxation details in respect of the private customer's investment; and
(p) how complaints are dealt with and how further details of compensation arrangements (if any) can be obtained;

(5) for ISAs with a life policy (insurance) or equity (stocks and shares) component and PEPs, in addition to (1), (2), (3) or (4):

(a) a description of the nature of the services which will be provided for the private customer;
(b) for ISAs or ISA components which are stated as satisfying the CAT standards:

(i) a table comparing the ISA or ISA component with the CAT standards;
(ii) clarification that satisfying the CAT standards does not mean that the investment is appropriate for the private customer or that there is any guarantee of performance;

(c) the fact, if applicable, that an ISA does not meet the CAT standards together with any relevant explanation;
(d) a statement that the favourable tax treatment of ISAs may not be maintained;
(e) how and when statements (if any) will be sent;
(f) an explanation how the ISA or plan may be terminated or transferred to another ISA or PEP manager; and
(g) whether the ISA is a mini-or maxi-ISA agreement and an explanation of the differences between the two.

(6) For stakeholder pension schemes, an explanation how complaints are dealt with and how further details of compensation arrangements (if any) can be obtained.
(7) For investments held within a CTF:

(a) a prominent statement that after money is paid into a CTF it is locked in, and that this means that it can only be accessed by the child when he is 18, except as permitted by the CTF Regulations, and any contributions made to the CTF cannot be returned to the donor;
(b) if the CTF is a stakeholder CTF, an explanation of the minimum standards (as described in paragraph 2 of the Schedule to the CTF Regulations) and CTF lifestyling approach (as described in paragraph 2 of the Schedule to the CTF Regulations), together with a statement that satisfying these minimum standards does not mean that the investment is suitable for a customer or that there is any guarantee of performance;
(c) if the CTF is a non-stakeholder CTF, a prominent statement that it is not a stakeholder CTF and that a stakeholder CTF is available from a named alternative CTF provider, together with a detailed description of that stakeholder CTF;
(d) a statement that the CTF will not be opened until any cancellation period has expired; and
(e) a balanced comparison between stakeholder CTFs and non-stakeholder CTFs.

01/03/2003

COB 6.5.42

If COB 6.4.13 R applies, for a cash deposit ISA, the private customer must be given the following information (in accordance with COB 6.4.13 R) and, in relation to a distance contract with a retail customer, all the contractual terms and conditions and the information in COB App 1 in place of key features:

(a) for the cash deposit ISA which is stated as satisfying the CAT standards, a comparison with the CAT standards; or
(b) if the cash deposit ISA is not stated as satisfying the CAT standards, a statement making this clear, together with, if desired, any relevant information;

(2) a statement making it clear whether the ISA is a mini or a maxi-ISA agreement and explaining the differences between the two;
(3) the minimum amount needed to open an account;
(4) the maximum yearly deposit;
(5) the interest rate earned, and if and how it may vary;
(6) the calculation of interest;
(7) how to make withdrawals and any limits;
(8) details of the arrangements for the application of the right to cancel, including the following:

(a) the options available on cancellation (a firm must either assist the private customer in switching accounts or refund all monies deposited together with interest);
(b) information about how cancellation will operate in circumstances where the account forms part of a maxi-ISA which contains other components;
(c) a statement that the effect of cancelling the last component has the effect of cancelling the entire ISA agreement and may also (where it is the case) delay the customer from entering into another ISA agreement until the next tax year; and
(d) a statement that a private customer who exercises a right to cancel will not incur any additional charges or be affected by any notice period;

(9) the arrangements for handling complaints;
(10) that the favourable tax treatment may not be maintained;
(11) that compensation may be available from the Financial Services Compensation Scheme;
(12) where applicable, that the firm cannot accept money directly and acts only as agent in arranging the cash deposit ISA, identifying the principal to whom such monies should be made payable, and explaining that the principal has accepted responsibility for the activities of the firm in relation to the cash deposit ISA;
(13) where a private customer can obtain further information about ISAs and, if applicable, other products within the firm's range; and
(14) a warning that a mini- and maxi-ISA may not be opened in the same tax year and that, by opening a mini cash ISA, the customer will be limiting the amount of investment in equities that he can make through ISAs, if he does not already have a mini stocks and shares or insurance ISA (not applicable for a TESSA-only ISA).

01/04/2004

COB 6.5.42A

If COB 6.4.13 applies, for a cash deposit CTF, the private customer must be given in place of key features:

(1) the information contained in COB 6.5.42 (4) and COB 6.5.42 (8) and in COB 6.5.40 (7);
(2) details of the arrangements for exercising any right to cancel;
(3) a statement explaining where a private customer can obtain further information about CTFs
(4) in relation to a distance contract with a retail customer, all the contractual terms and conditions and the information in COB App 1.

01/12/2001

Friendly Society tax exempt policies

COB 6.5.43

Where a private customer buys a tax-exempt policy issued by a friendly society, or agrees to make additional contributions to such a policy, the firm may, where there is a right to cancel under COB 6.7 (Cancellation and withdrawal), issue an abbreviated form of key features containing the following details:

(1) the amount of the contribution;
(2) the term over which the contribution will be paid;
(3) material differences between the terms of any increase and those of the existing policy;
(4) the amount or value in cash terms of the commission or remuneration; and
(5) in relation to a distance contract with a retail customer, all the contractual terms and conditions and the information in COB App 1.

09/10/2004

Traded life policies

COB 6.5.44

When personally recommending the purchase of a traded life policy, a firm may provide a private customer with the information in COB 6.5.49 R and, in relation to a distance contract with a retail customer, all the contractual terms and conditions and the information in COB App 1 in place of key features (in accordance with COB 6.4.14 R).

09/10/2004

Broker funds

COB 6.5.45

In relation to any fund or scheme of which the firm is a broker fund adviser, at the same time as providing a private customer with a suitability letter (in accordance with COB 5.3 (Suitability)) or before any change in investment objectives or strategies, the firm must inform the private customer in writing of:

(1) the investment objectives, and the policies and strategies which are proposed to be followed to achieve those objectives;
(2) the relevant published index or other indicator with which comparison of the performance of the fund or scheme may fairly be made, which is, in the case of:

(a) life policies or pension funds:

(i) where the long-term insurer has its own managed unit-linked life or pension fund, the average performance of that managed fund; or
(ii) the average performance of one or more other funds, which are not broker funds, into which under the terms of the policy the private customer may switch, the objectives of which do not conflict with those of the broker fund; or
(iii) where there is no such fund, the sector average of general managed life or pension funds;

(b) broker unit trusts, the sector average of unit trusts appropriate to the objectives and strategy of the broker unit trust;

(3) a published index or sector average which the firm must identify as appropriate to the investment objectives and strategy of the fund or scheme under comparison; and
(4) the name of any person providing advice under the arrangement.

01/12/2001

Other information: post-sale confirmation: life policies

COB 6.5.46

The post-sale confirmation to be given to private customers in accordance with COB 6.3.3 R must include the information required by COB 6.5.15 R - COB 6.5.19 R(an Example), COB 6.5.23 R to COB 6.5.28 R (Tables and Deductions Summary) and COB 6.5.38 R (Commission and commission equivalent).

01/12/2001

Consolidated Life Directive annex III: 'information for policyholders'

COB 6.5.47

(1) A firm to which COB 6.5.40 R (1)(b) applies must communicate in writing the information prescribed in COB 6.5.49 R to the policyholder, before the policy is concluded, in an official language of the EEA State of the commitment.
(2) This information may be in another language if the policyholder so requests, and the law of the EEA State so permits or the policyholder is free to choose the law applicable.

01/12/2001

COB 6.5.48

The headings and other wordings within COB 6.5.49 R follow those used in the European Directives.

01/12/2001

COB 6.5.49

Consolidated Life Directive annex III table of 'information for policyholders'

This table belongs to COB 6.5.47 R

Consolidated Life Directive - 'information for policyholders'

Information about the assurance undertaking

Information about the commitment

1. The name of the undertaking and its legal form

4. Definition of each benefit and each option

2. The name of the EEA State in which the head office and, where appropriate, the agency or branch concluding the policy is situated

5. Term of the policy

3. The address of the head office and, where appropriate, of the agency or branch concluding the policy

6. Means of terminating the policy

7. Means of payment of premiums and duration of payments

8. Means of calculation and distribution of bonuses

9. Indication of surrender and paid-up values and the extent to which they are guaranteed

10. Information on the premium for each benefit, both main benefits and supplementary benefits, where appropriate

11. For unit-linked policies, definition of the units to which the benefits are linked

12. Indication of the nature of the underlying assets for unit-linked policies

13. Arrangements for application of the right to cancel

14. General information on the tax arrangements applicable to the type of policy

15. The arrangements for handling complaints concerning policies by policyholders, lives assured or beneficiaries under policies, including, where appropriate, the existence of a complaints body, making clear that its existence is without prejudice to the right to take legal proceedings.

16. Law applicable to the policy where the parties do not have a free choice or, where the parties are free to choose the law applicable, the law the long-term insurer proposes to choose.

01/03/2003

Life policies: requests for quotations for surrender values

COB 6.5.50

When a long-term insurer receives:

(1) a request from a private customer for a quotation for the surrender value of a life policy; or
(2) any other indication that a private customer wishes to surrender a life policy;
which is of a type which may be traded on an existing secondary market for life policies, it must, before or when providing the quotation (or, if no quotation is provided, before accepting a surrender), make the policyholder aware in writing of:
(3) the fact that, as an alternative to surrendering to the long-term insurer, the life policy may be traded on that secondary market;
(4) the fact that there may be financial benefits in trading the life policy when compared to surrendering it to the long-term insurer;
(5) how the policyholder may trade the life policy on the secondary market should he decide to do so; and
(6) other relevant options available to the policyholder.

01/09/2002

COB 6.5.51

(1) When complying with COB 6.5.50 R, a long term insurer may identify whether the policy is of a type which may be traded by obtaining information from a trade association or other body which holds information on the relevant secondary market.
(2) COB 6.5.50 R (5) requires a firm to ensure that the policyholder is made aware of the existence of the secondary market and how he might access it. A firm may, if it wishes, go further than this (for example, by telling the policyholder more about the market and the procedures) but it is not obliged to do so.
(3) The other relevant options referred to in COB 6.5.50 R(6) may, for example, include informing the policyholder about making the policy paid-up or taking a loan against the policy, and about the desirability of obtaining professional advice before surrendering.

01/09/2002

COB 6.5.52

Where a long-term insurer believes that COB 6.5.50 R does not apply because its own policies are of a type which are not tradable, it must review the position every six months and make and retain records indefinitely to support its view.

01/09/2002

Open market option: "Wake-up letter"

COB 6.5.53

(1) A firm must provide a scheme member or policyholder described in (2) with the information set out in (3) in writing:

(a) when there is a request for a retirement quotation more than four months before the scheme member's or policyholder's intended retirement date; and
(b) at least four months before the scheme member's or policyholder's intended retirement date.

(2) A person in relation to whom (1) applies is a private customer who:

(a) is a member of a personal pension scheme; or
(b) is a member of a stakeholder pension scheme; or
(c) is the holder of a free-standing additional voluntary contribution contract; or
(d) (where an open market option is available under the contract terms) is the holder of a retirement annuity contract; or
(e) (where an open market option is available under the contract terms) is the holder of a pension buy-out contract.

(3) The information which a firm must provide in writing under (1) is an explanation of:

(a) the open market option (including the fact that companies offer different annuity rates and different types of annuity, and that the scheme member or policyholder may get a better deal by shopping around);
(b) the financial advantages and disadvantages in general terms of making use of this option when compared with taking a pension annuity with that firm;
(c) how the scheme member or policyholder may make use of the open market option should he decide to do so; and
(d) the advisability of taking professional advice.

01/09/2002

COB 6.5.54

Principle 7 (Communications with clients) requires a firm to pay due regard to the information needs of its clients and communicate information to them in a way which is clear, fair and not misleading. In the FSA's view, a firm would not normally be able to satisfy its obligations under Principle 7 if it sent the information required under COB 6.5.53 R (1)(b) more than six months before the scheme member's or policyholder's intended retirement date.

01/09/2002

COB 6.5.55

(1) A firm may comply with its obligations under COB 6.5.53 R (3)(a) (b) (c) and (d) by providing a copy of the FSA's factsheet about annuities entitled "Your pension 'it's time to choose'". However, if a firm is aware that its pension scheme or contract offers particular features which are likely to be relevant to customers' decisions (for example, an option to acquire an annuity at a guaranteed rate of interest) then the firm would also be expected to draw attention to those features. Firms can obtain copies of this factsheet by contacting the FSA's Consumer Helpline on 0845 606 1234.
(2) Where a firm provides the FSA 's factsheet about annuities ("Your pension "it's time to choose?") under COB 6.5.53 R, it may wish to include the following wording in its covering letter: "The enclosed factsheet about your options is from the Financial Services Authority (FSA), the independent watchdog set up by Parliament. Please read this document carefully".

01/09/2002

Open market option: "Reminder letter?"

COB 6.5.56

A firm which has provided information under COB 6.5.53 R must, at least six weeks before his intended retirement date, remind the scheme member or policyholder of that communication, and must provide him with an estimated final transfer value.

01/09/2002

Pension income withdrawals and phased retirement

COB 6.5.57

When a scheme member or policyholder described in COB 6.5.53 R (2) indicates to the provider of that scheme or policy that he is considering or has decided:

(1) to discontinue an income withdrawal arrangement; or
(2) to take out a further sum of money from his pension fund to buy an annuity as part of a phased retirement arrangement;

the provider of that scheme or policy must send the scheme member or policyholder the information required by COB 6.5.53 R, unless the scheme member or policyholder has already been sent the information by the provider in the previous 12 months.

01/04/2003

COB 6.5.58

COB 6.5.57 R is intended to ensure that, when a scheme member or policyholder is considering or has decided to discontinue an income withdrawal arrangement and buy an annuity, he receives a further reminder from his current provider of the information required by COB 6.5.53 R (3). Similarly, where a scheme member or policyholder has opted for phased retirement, COB 6.5.57 R requires his pension plan provider to send him this information when he is about to buy a further annuity. This may be several years after the information on the open market option was previously sent to the scheme member or policyholder and will ensure that he is made aware, at the time he decides to buy an annuity, of the advantages and disadvantages of using the open market option. However, it is not necessary to send the information to scheme members or policyholders described in COB 6.5.57 R (1) or (2) if the provider has already done so in the previous 12 months.

01/04/2003

COB 6.6

Projections

01/12/2004

Application

COB 6.6.1

COB 6.6 applies to a firm in respect of projections for life policies, schemes and stakeholder pension schemes.

01/12/2001

Purpose

COB 6.6.2

COB 6.6 amplifies Principle 7 (Communications with clients), which requires a firm to pay due regard to the information needs of its clients, and communicate information to them in a way which is clear, fair and not misleading. A projection needs to be carried out on a basis of uniform and consistent rates of investment return so that firms do not seek to compete on the basis of wholly speculative forecasts as to the potential value of future benefits. This should ensure that private customers purchasing a life policy, scheme or stakeholder pension scheme receive information about possible future returns from their investment in a way which is fair and not misleading.

01/12/2001

Content

COB 6.6.3

COB 6.6 sets out:

(1) when these rules apply COB 6.6.4 R - COB 6.6.7 R);
(2) the information and statements to accompany projections COB 6.6.8 R - COB 6.6.18 R);
(3) what records must be kept of projections issued to customers COB 6.6.19 R);
(4) the method of calculating a projection COB 6.6.20 G - COB 6.6.53 G);
(5) the method of calculating the effect of deductions (the reduction in yield) which must be included within key features COB 6.6.54 G - COB 6.6.62 R);
(6) the method of calculating charges and expenses relating to schemes . COB 6.6.63 G - COB 6.6.79 G);
(7) assumptions to be used when converting a retirement fund into an annuity COB 6.6.80 R - COB 6.6.85 R); and
(8) how to produce a pension transfer value analysis COB 6.6.86 G - COB 6.6.93 R).

01/12/2001

General

COB 6.6.4

A firm must not provide a projection for a life policy, scheme or stakeholder pension scheme unless the projection is calculated and presented in accordance with the rules in COB 6.6.

01/12/2001

Exceptions

COB 6.6.5

COB 6.6.4 R does not apply to a firm when it provides a projection:

(1) of the benefits payable under a defined benefit occupational pension scheme, unless they are money-purchase benefits;
(2) issued with a view to determining a maximum contribution allowed by the Inland Revenue, provided the assumptions used in calculating such a contribution are disclosed;
(3) if the benefits are fixed and do not depend on an assumption of a future investment return;
(4) of a benefit under an existing contract where the date to which the benefit is being projected is not more than six months after the date on which the projection is given;
(5) contained in a decision tree as specified in COB 6.5.8 R;
(6) of the benefits payable under pension scheme or a stakeholder pension scheme if they were:

(a) calculated and issued in accordance with regulations made under section 113 of the Pensions Schemes Act 1993; or
(b) calculated and issued as in (a) and, in addition, includes one or more of the following benefits:

(i) the projected fund at the projection date; or
(ii) the cash sum and the residual pension in real terms; or
(iii) the pension in real terms calculated assuming a rate of return 1% per annum less than that prescribed in the regulations; or

(c) calculated as in (a) or (b) but where the illustration of benefits is not required to be issued under the regulations by reference to proximity to the projection date or the small size of the fund.

(7) provided in accordance with COB 8.2.4 R and COB 8.2.17 E where the life policy, scheme or stakeholder pension scheme is a structured capital-at-risk product.

01/11/2002

COB 6.6.5A

(1) A revised projection to take account of a different marital status or projection date will fall within the exception in COB 6.6.5 R (6) as long as it meets the conditions of that rule.
(2) Where the exception in COB 6.6.5 R (6) does not apply and a firm provides a real value projection for a pension scheme or a stakeholder pension scheme, then normally it would be a type P projection if in terms of prices or a type Q projection if in terms of earnings. The calculation method is set out in COB 6.6.34 R (5).

01/11/2002

Higher volatility funds

COB 6.6.6

A firm must not provide a projection of possible investment returns or realisable values, or figures or statements which would enable the calculation of such a projection, for an investment in a higher volatility fund.

01/12/2001

Projections issued by independent intermediaries

COB 6.6.7

A firm must, in addition to complying with other rules in this section, ensure that a projection given to a particular customer is relevant to that customer's circumstances.

01/12/2001

Information to accompany projections

COB 6.6.8

(1) A document containing a projection must include the information detailed in COB 6.5 (Key Features) under the headings 'An Example', 'Tables', 'Deductions Summary' and 'Commission and Remuneration', unless (2) applies.
(2) The information under the headings 'Tables', 'Deductions Summary' and 'Commission and Remuneration' need not be included in a projection issued in respect of:

(a) an existing contract; or
(b) a financial promotion (other than a direct offer financial promotion); or
(c) an execution-only transaction relating to a scheme .

(3) If the projection relates to a contract to which regular premiums or contributions can be made, the total amount or number of premiums or contributions payable over the projection term must be made clear.
(3A) If the projection is a type P projection or a type Q projection, the basis used for increases in premiums or contributions must be disclosed.
(4) Other than a type P projection or a type Q projection, where a projection is given which makes allowance for increases in premiums or contributions, the premium or contribution in the final year must be shown (or, where the rate of possible future increments is based upon rates of growth in a salary or index, details of that salary or index).

01/11/2002

Generic and stochastic projections

COB 6.6.9

(1) A firm may provide a generic projection for illustrative purposes based on a single rate of investment return only in the following circumstances:

(a) in a financial promotion (other than a direct offer financial promotion) which comprises a table (or extracts from a table) published by a newspaper, magazine or other periodical publication, or by the firm itself, which compares illustrative projections from at least five product providers; or
(b) where the purpose is to indicate the likely cost of a proposed transaction; or
(c) to provide an estimate of the additional premium or contribution required to achieve a specified target; or
(d) when providing a type P projection or a type Q projection.

(2) A firm which provides a generic projection must ensure that:

(a) it does not relate solely to an existing contract;
(b) the rate of return used does not exceed the higher projection rate for its class of business;
(c) where the rate used exceeds the middle rate by more than 0.5 percentage point, a statement is included advising why it is believed reasonable to project at such a high rate of return;
(d) where the charges and expenses (as described in COB 6.6.23 R) of the product provider are available, they are used, or an estimate is given based on the firm's knowledge of the charges and expenses applicable to similar contracts;
(e) it is accompanied by the written statements contained in COB 6.6.17 R; and
(f) key features are supplied in accordance with COB 6.1 to COB 6.5 (Key Features) if a recommendation is subsequently made.

(3) A firm may issue a stochastic projection only where:

(a) the purpose is to indicate a range of possible outcomes; and
(b) either:

(i) it is provided for the purpose of a proposed transaction; or
(ii) it is provided in addition to a projection which: (A) is not a stochastic projection but which complies with COB 6.6.4 R; or (B) is a projection excepted under COB 6.6.5 R(6).

(4) A firm which issues a stochastic projection must ensure that:

(a) it is based on a reasonable number of simulations and is consistent with the economic assumptions underlying the rates of inflation in COB 6.6.48A R and the intermediate rates of return in COB 6.6.50 R and COB 6.6.51 R;
(b) its presentation does not reduce the impact of non-stochastic projections; and
(c) it is issued only in circumstances in which the firm has taken reasonable steps to ascertain that the customer will be able to understand the stochastic projection.

01/05/2003

COB 6.6.9A

(1) For the purposes of COB 6.6.9 R (3)(a) and (4)(a) and (b):

(a) to indicate a range of expected outcomes, a firm should present the results:

(i) as amounts showing the median (50%) figure and, in addition, at least the amounts at 10% and 90%, or at least the amounts at 20% and 80%; or
(ii) graphically showing the frequency of results from at least 10% to 90%; or
(iii) in a diagrammatic form which indicates both the range and frequency of results;

(b) to base the stochastic projection on a reasonable number of simulations, a firm should incorporate the results of at least 500 simulations; to enable consistent projections to be issued and to facilitate recreating previously issued projections, a firm should use the same set of simulations until the investment model or the underlying assumptions are revised; and
(c) to be consistent with the economic assumptions, a firm should ensure that:

(i) the parameters of each asset class are consistent with each other and the median (50%) result for a fund invested 70% in UK equities and 30% in UK government fixed interest stocks does not exceed a projection calculated using the intermediate rate of return from COB 6.6.50 R or COB 6.6.51 R; and
(ii) the investment model is tested and adjusted so that the results are consistent with COB 6.6.9 R(4)(a).

(2) Compliance with (1) may be relied upon as tending to establish compliance with COB 6.6.9 R(3)(a) and (4)(a) and (b).

01/05/2003

Pension projections

COB 6.6.10

For pension targeting, a firm's own assumptions as to future rates of return (but not exceeding the higher rate of return as specified in COB 6.6.49 R), salary increases and inflation must be used to determine the level of contributions. Any allowance for salary increases used in pension targeting must not be less than the rate of return assumed before retirement less 3% per annum.

01/12/2001

COB 6.6.11

A projection in respect of the protected rights for an appropriate personal pension must, for the purpose of comparison, include a projection which:

(1) is calculated to the customer's State retirement age, using the lower and higher real rates of return specified in COB 6.6.52 R, together with a statement of the benefits which the minimum contributions would secure if the customer did not take out an appropriate personal pension;
(2) [deleted]
(3) aggregates contributions in respect of the current and the next two tax years;
(4) is followed by the appropriate personal pension projection and a description of any differences in:

(a) presentation, for example, real or monetary rates of return, joint or single life;
(b) the dates from which the benefits are assumed to be payable;
(c) the nature of the benefits, for example, index-linked or limited price indexation ('LPI') increases.

01/11/2002

COB 6.6.12

COB 6.6.11 R (1) to (3) require that, where the contract is in respect of contracting-out of the State Second Pension, there should be a comparison using real rates of return of the benefits being given up and the relevant contract. COB 6.6.11 R (4) permits additional projections provided that the differences are described.

01/11/2002

COB 6.6.13

A projection for income withdrawals from a personal pension or stakeholder pension scheme:

(1) must include:

(a) a statement of the initial amounts of minimum and maximum income as specified in the current tables published by the Government Actuary for income withdrawals;
(b) a statement of the assumed initial level of income and the assumed basis for future years;
(c) a schedule showing under the heading 'WHAT THE BENEFITS MIGHT BE' the amount of income and the fund at each, or every third, anniversary for each of the rates of return specified in COB 6.6.49 R;
(d) a statement of the projected open market values and the amounts of annuity at age 75 or the date at which it is reasonably assumed an annuity will be purchased; and
(e) a statement of the amount of annuity that could be secured using an immediate annuity rate available in the market; and

(2) must assume that the current rate of gilt-index yield will continue to apply in projecting amounts of minimum and maximum income throughout the term of the projection.

01/11/2002

Statements to accompany projections

COB 6.6.14

(1) A document containing a projection must include the appropriate statements set out in COB 6.6.16 R - COB 6.6.18 R.
(2) A statement may be altered if a firm believes on reasonable grounds that it is not wholly appropriate to the contract in question. But the alteration must not reduce the significance or impact of the statement.
(3) Any statement required to accompany a projection must appear adjacent to the projected values and be in a type size no smaller or less prominent than that used for the projected values.

01/11/2002

COB 6.6.15

(1) The statements in COB 6.6.16 R must accompany each projection for a life policy or scheme as indicated, except a generic projection given in accordance with COB 6.6.9 R (see COB 6.6.17 R), or a protected rights annuity projection calculated in accordance with COB 6.6.11 R (see COB 6.6.18 R).
(2) For a pension scheme or stakeholder pension scheme, the appropriate statement from item 4 of COB 6.6.16 R must appear immediately after the projection.
(3) Where a pension scheme or stakeholder pension scheme projection, using monetary rates of return in COB 6.6.51 R, is provided at the same time as a type P projection or a type Q projection, the appropriate statement from COB 6.6.16 4 must appear immediately after the projection. The remainder of the appropriate statements in COB 6.6.16 R need only be included once, as long as the firm makes it clear that these statements apply to both types of projection.

01/11/2002

COB 6.6.16

Statements to accompany projections of life policies, schemes or stakeholder pension schemes (excluding generic projections and protected rights annuity projections)

This table belongs to COB 6.6.15 R

Statements to accompany projections of life policies, schemes or stakeholder pension schemes (excluding generic projections and protected rights annuity projections)

1. These figures are only examples and are not guaranteed - they are not minimum or maximum amounts. What you will get back depends on how your investment grows and on the tax treatment of the investment.

2. [You could get back] [your retirement fund could be] more or less than this.

3. All firms use the same rates of growth for projections but their charges vary. [They also use the same rates to show how funds may be converted into pension income].

4. (a) Do not forget that inflation would reduce what you could buy in the future with the amounts shown.
(b) This illustration shows, in today's prices, the pension that might be payable when you retire. This means we have allowed for future inflation to give you an indication of how much you would be able to buy with your pension if it were payable today.

5. [Your pension income will depend on how your investment grows and on interest rates at the time you retire].

6. These rates of return are not necessarily appropriate [for contracts written in] [for units traded in] [for shares traded in] currencies other than sterling.

7. Benefits may also be affected by fluctuations in exchange rates.

Note:
In respect of statement 4, the firm must include the appropriate statement (a) or (b).
Statement 5 applies to pension contracts only and statements 6 and 7 apply to non-sterling investments only.

01/11/2002

COB 6.6.17

Statements to accompany generic projections

This table belongs to COB 6.6.15 R

Statements to accompany generic projections

These figures are only illustrative.

An assessment of your needs will be confirmed before a recommendation can be made OR Your needs will be confirmed before a recommendation can be made.

Key features , including a projection which is personal to your circumstances, will be provided if a recommendation for an investment product is made.

01/12/2001

COB 6.6.18

Statements to accompany projections for protected rights contracts

This table belongs to COB 6.6.15 R

Statements to accompany projections for protected rights contracts

1. These figures are only meant to give you a rough idea of the amount of pension you might get compared with the benefit that you would be giving up under the State Second Pension.

2. The figures show what might happen if we achieved an investment return of [x%] or [y%] each year on top of the rate of earnings inflation.

3. They are only examples and are not guaranteed - they are not minimum or maximum amounts. What you will get back depends on how your investment grows.

4. You could get back more or less than this.

5. All firms use the same rates of growth for projections but their charges vary. They also use the same rates to illustrate how funds may be converted into pension income.

6. Your pension income will depend on how your investment grows and interest rates at the time you retire.

Note: [x%] and [y%] in statement 2 are the real rates of return used in the projection as specified in COB 6.6.51 .

01/11/2002

Records

COB 6.6.19

A firm must ensure that a record of a projection provided to a customer is made and retained, unless it relates to a proposal which does not proceed. The record must be retained for a minimum period of:

(1) six years in the case of a record relevant to a life policy, pension contract or stakeholder pension scheme;
(2) indefinitely in the case of a record relevant to a pension transfer or pension opt-out;
(3) three years in any other case.

01/12/2001

The calculation of a projection

COB 6.6.20

COB 6.6.21 R - COB 6.6.53 G set out:

(1) definitions of key terms used in the calculation of a projection (COB 6.6.21 R);
(2) the basic approach to be used when calculating a projection for life policies (COB 6.6.34 R), Holloway sickness policies COB 6.6.35 R), schemes (COB 6.6.36 R) and stakeholder pension schemes (COB 6.6.34 R);
(3) principles which must be taken into account when calculating a projection including general principles which may apply to all life policies, schemes and stakeholder pension schemes (COB 6.6.37 R - COB 6.6.38 R) and specific principles applicable to certain types of product or features within a product COB 6.6.39 R - COB 6.6.46 R);
(4) tables containing the rates of return to be used when calculating a projection depending on the type of contract being projected COB 6.6.47 R - COB 6.6.53 G).

01/12/2001

Key terms used in the calculation of a projection

COB 6.6.21

The descriptions of defined terms in COB 6.6.22 R to COB 6.6.33 R apply to all references to those terms in COB 6.6.34 R - COB 6.6.78 G which detail the method of calculating projections and of calculating charges and expenses and the recommended method of calculating scheme expenses.

01/12/2001

Adjusted premium

COB 6.6.22

(1) The adjusted premium is the premium or contribution payable under the contract during the contract period (defined in COB 6.6.25 R), disregarding any increases that cannot be quantified at the commencement of the contract (but allowing for any increases which are assumed and disclosed in the key features).
(2) When calculating the amount of premium or contribution, a firm may deduct:

(a) the cost of any rider benefits;
(b) any part of a premium or contribution which is payable in respect of an exceptional mortality risk.

01/12/2001

Charges and expenses

COB 6.6.23

(1) For a scheme or unit-linked life policy, charges and expenses are all explicit charges and expenses the customer will or may bear:

(a) including:

(i) all other deductions and expenses which will or may bear upon the fund (including charges in respect of any collective investment scheme or insurance fund in which any funds of the contract in question are invested but excluding dealing costs of the underlying portfolio); and
(ii) all deductions from the premium or contribution payable which do not accrue to the benefit of the customer by way of contribution to the value of the benefit;

(b) having regard to:

(i) the principal terms of the contract; and
(ii) any tax relief which will be available to the fund or scheme in respect of so much of the fund's or scheme's gross expenses as can be properly attributed to the contract.

(2) For a with-profits contract, or a unit-linked life policy where not all charges and expenses are determined in accordance with (1), charges and expenses are such expenses as the firm reasonably determines to be appropriate to the contract having regard to:

(a) the principal terms of the contract;
(b) any tax relief which will be available to the firm in respect of so much of the firm's gross expenses as can properly be attributed to the contract;
(c) any transfers to shareholders' funds, or equivalent retentions from established surplus offset by any sustainable rate of transfer of surplus from non-profit business;
(d) dealing costs of the underlying portfolio which should be excluded; and
(e) any guidance published by the Institute of Actuaries or the Faculty of Actuaries (or by both jointly).

(3) If a contract has explicit charges, it should be assumed that they continue at a rate no less than that at which similar charges are being made at the time when the projection or calculation of the effect of the charges is made.

01/12/2001

COB 6.6.24

For the calculation of the effect of deductions in projections, charges are all explicit charges adjusted for tax as in COB 6.6.23 R (1)(b) and expenses are all other deductions. For stakeholder pension schemes, charges are all explicit charges and expenses for the underlying policy or contract, including any charges levied by the manager or trustees of the stakeholder pension scheme.

01/12/2001

Contract period

COB 6.6.25

The contract period of a life policy, scheme or stakeholder pension scheme is the period beginning with the commencement of the contract and ending as follows:

(1) for a contract which contains an option under which benefits may be:

(a) payable earlier than the date on which they would be payable if the option were not exercised; and
(b) the marketing of which seeks to draw to the attention of customers the existence of an option or surrender value, so that it is reasonable to infer that the firm expects some customers to purchase the contract with the intention of exercising the option or surrendering the contract in whole or in part;

on the earliest date on which an option may be exercised or the contract may be surrendered (in whole or in part);
(2) for a contract which is a whole life assurance the premiums under which are regular premiums:

(a) the anniversary of the commencement of the contract which first falls after the seventy-fifth birthday of the person whose life is assured under the contract, taking, if there are two or more such persons:

(i) the older or oldest if the benefits under the contract are payable on the death of the first of them to die; and
(ii) the younger or youngest in any other case; or

(b) the tenth anniversary of the commencement of the contract;

whichever is the later;
(3) in the case of an endowment assurance or a non-pension deferred annuity, the premiums under which are regular premiums, on the maturity date;
(4) in the case of an endowment assurance or a non-pension deferred annuity under which the only premium payable is a single premium and the term of which does not exceed ten years, on the maturity date;
(5) in the case of a Holloway sickness policy, on the latest date on which the sickness benefit will cease to be payable;
(6) in the case of a pension contract other than an immediate annuity, on the maturity date or, if the contract provides for annuities at various dates, the latest date at which an annuity may be purchased;
(7) in the case of an immediate annuity, on the date to which the customer is expected to live, calculating the expectancy of life for this purpose by reference to an appropriate mortality basis; and
(8) for the purpose of this section 'maturity date' means:

(a) in relation to an endowment type assurance, the date specified in the contract as the maturity date;
(b) in relation to a pension contract or stakeholder pension scheme, the vesting date of the annuity payable under the contract or, if no vesting date for the annuity is specified in the contract, the date specified in relation to the annuity as the retirement date by the firm in the projection in question, being a date not earlier than the earliest date on which the annuity could vest and not later than the latest such date.

01/12/2001

COB 6.6.26

In the case of any contract which falls within both COB 6.6.25 R (1) and one or more of COB 6.6.25 R (2)- (7), the contract period must be determined by reference to COB 6.6.25 R (1).

01/12/2001

COB 6.6.27

In the case of any contract not falling within COB 6.6.25 R, then:

(1) for schemes, the contract period will end on the tenth anniversary of the commencement date of the contract; and
(2) for all other contracts there will be two contract periods, the first ending on the fifth anniversary of the commencement date of the contract, and the second ending on the tenth anniversary of the commencement date.

01/12/2001

Cost of risk benefits

COB 6.6.28

Cost of risk benefits means:

(1) explicit mortality or morbidity charges (at a level no lower than the current level); or
(2) the implicit cost or effect of mortality or morbidity appropriate to the class of customers;

and risk benefits means all forms of mortality and sickness benefits under a contract.

01/12/2001

Relevant contribution

COB 6.6.29

The relevant contribution is the actual payment or payments to be made by the customer, or a sum which reasonably reflects the amounts which the customer is proposing to invest, into a scheme , except in the case of a protected rights annuity (see COB 6.6.31 R).

01/12/2001

Relevant premium

COB 6.6.30

The relevant premium is the actual premium payable under a life policy less an amount equal to the cost of any rider benefit, except in the case of a protected rights annuity (see COB 6.6.31 R).

01/12/2001

Relevant premium or contribution for protected rights annuities

COB 6.6.31

The relevant premium or contribution in relation to a protected rights annuity is an amount that may reasonably be estimated to be paid by the Secretary of State or the Department of Social Services for Northern Ireland by way of minimum contributions in respect of the customer involved.

01/12/2001

COB 6.6.32

The relevant premium or contribution may include amounts in respect of minimum contributions expected to be paid in future years. This applies if the estimate for those years makes allowance for the most recent assumptions published by the Government Actuary in respect of the future years, and these assumptions and the period of any projection are made clear.

01/12/2001

Relevant rate of return

COB 6.6.33

The relevant rate of return is the intermediate projection rate appropriate to the category of business as set out in COB 6.6.50 R - COB 6.6.52 R, or the lower rate if COB 6.6.38 R (1) (Projections of surrender values and transfer values) applies.

01/12/2001

Basic calculation method life policy or stakeholder pension scheme calculation

COB 6.6.34

(1) A projection of any future benefit payable under a life policy or stakeholder pension scheme must be calculated by reference to the relevant premium for the policy or stakeholder pension scheme.
(2) The relevant premium must be accumulated to the projection date at the rate of return for its class of business as detailed in COB 6.6.50 R to COB 6.6.52 R, subject to charges and expenses (as described in COB 6.6.23 R) and the cost of risk benefits. The intermediate projection rate need not be used for an existing contract.
(3) An allowance must be made where a customer has exercised or has expressed the intention to exercise an option to effect a partial surrender of a policy.
(4) Allowance must not be made for income withdrawals, surrenders, lapses or early discontinuance, except as in (3).
(5) A type P projection or a type Q projection must be calculated as follows:

(a) the relevant premium for the pension scheme or stakeholder pension scheme must be used;
(b) the relevant premium, with allowance for premium increases as specified in COB 6.6.48A R, must be accumulated to the projection date at the intermediate monetary rate of return detailed in COB 6.6.51 R subject to charges and expenses (as described in COB 6.6.23 R) and the cost of risk benefits;
(c) the retirement fund from (b) must then be converted to a real retirement fund by discounting from the projection date using the rate of increase in the retail prices index (for type P projection) or the rate of increase in earnings (for type Q projection) in COB 6.6.48A R;
(d) the pension must be calculated from the real retirement fund using the appropriate intermediate rate in COB 6.6.51 R, using the mortality tables in COB 6.6.84 R, the format in COB 6.6.82 R (7) and expenses in COB 6.6.83 R.

01/11/2002

Holloway sickness policy calculation

COB 6.6.35

For a Holloway sickness policy issued by a friendly society, a rate of bonus no greater than that last declared by the friendly society must be accumulated, with allowance for applicable charges and expenses (as described in COB 6.6.23 R) at the rates of return set out in COB 6.6.50 R until the projection date.

01/12/2001

Scheme calculation

COB 6.6.36

(1) A projection of any future benefit payable under a scheme must be calculated by reference to the relevant contribution for the scheme.
(2) The relevant contribution must be accumulated to the projection date at the rates of return for the relevant class of business as detailed in COB 6.6.50 R, subject to charges and expenses (as described in COB 6.6.23 R). The intermediate rate of return need not be used for an existing contract.
(3) An allowance must be made where a customer has exercised or expressed the intention to exercise an option under the scheme to make withdrawals, either by:

(a) encashment of units; or
(b) distribution of income, which must be calculated using an estimated gross distribution yield, reduced by the rate of tax relevant to the contract; the distribution yield must be rounded to the higher 0.1%.

(4) No allowance must be made for the distribution of income except as in (3).
(5) A type P projection or, a type Q projection must be calculated in accordance with COB 6.6.34 R (5) but substituting "contribution" for "premium" throughout.

01/11/2002

General rules applicable to the calculation of projections

COB 6.6.37

(1) A projection must be rounded down to not more than three significant figures.
(2) Where the projection, other than a projection in real terms of a pension contract or stakeholder pension scheme, is less than the amount guaranteed under the life policy or scheme, the projection must be increased to that guaranteed amount.
(3) Where a customer is entitled, and has expressed the intention, to increase the premium or contribution by an amount linked to future salary or other index increases, the relevant premium or contribution may be calculated:

(a) for a type P projection or a type Q projection, making allowance for increases at the relevant rate set out in COB 6.6.48A R; and
(b) for all other cases, by making allowance for such increases on the same basis as that used for administration charges in COB 6.6.47 R.

01/11/2002

Projections of surrender values and transfer values

COB 6.6.38

A projection of a surrender or transfer value:

(1) must be given using the intermediate rate of return appropriate to its category of business, unless:

(a) the firm reasonably expects the rate to overstate the potential of the contract, in which case a lower rate of return must be used and disclosed; or
(b) the customer so requests, in which case a lower rate of return may be used, and the fact that it has been used must be disclosed;

(2) must make allowance for partial surrenders of a contract where the contract terms permit this and the customer has exercised this option or expressed the intention to do so;
(3) must allow for the firm's surrender value basis and reflect the current approach of the firm towards applying penalties on surrender, including less than full credit for accrued terminal bonus, specific penalties or exit charges; and
(4) for a with-profits contract where bonus rates apply, must ensure that the bonus rates supported by the relevant premium are assumed to apply throughout the term of the contract.

01/12/2001

Rules specific to products or features of products: annuities

COB 6.6.39

(1) Any projection of an annuity with one or more years to maturity must show an annuity value based on the higher and lower rates of return as set out in COB 6.6.50 R to COB 6.6.52 R, and make allowance for:

(a) mortality (as set out in COB 6.6.84 R) and also, in the case of life policies, morbidity appropriate to the class of customers; and
(b) charges and expenses (as described in COB 6.6.23 R).

(2) Any projection of an annuity with less than one year to maturity must be calculated using annuity rates no more favourable than the firm's current immediate annuity rates.
(3) Where a firm which does not offer annuities issues a projection for a contract the proceeds of which are to be applied to the purchase of an annuity, the firm must use annuity rates no more favourable than those currently being used in the open market for such a projection.

01/11/2002

COB 6.6.40

In the case of a contract for an immediate annuity:

(1) the uniform rate of continuous change in annuity supported by the actual premium to be paid must be determined for each rate of return with allowance for:

(a) mortality appropriate to the class of customer; and
(b) charges and expenses (as described in COB 6.6.23 R) on the assumptions used when calculating the firm's own annuity rates;

(2) the rate of continuous change in annuity calculated must then be:

(a) applied to the initial annuity under the contract which is the subject of the projection; and
(b) assumed to be maintained throughout the term of the contract.

01/12/2001

Appropriate personal pensions and protected rights annuities

COB 6.6.41

(1) The retirement fund for a protected rights annuity under an appropriate personal pension scheme or stakeholder pension scheme must be calculated by accumulating the relevant contribution less charges and expenses (as described in COB 6.6.23 R) at the relevant rates of return for the period.

(a) The relevant period is either:

(i) where the relevant contribution is a minimum contribution, from the 1st September following the end of the tax year to which the minimum contribution relates up to the maturity date; or
(ii) where the relevant contribution is a transfer value, from the commencement of the contract up to the maturity date.

(b) The relevant rates of return are:

(i) in the case of a protected rights annuity projection issued in accordance with COB 6.6.11 R (1), the real rate of return in COB 6.6.52 R;
(ii) in the case of any other protected rights annuity projection, the monetary rates of return in COB 6.6.51 R.

(2) The annuity must be calculated by reference to the retirement fund using the relevant rates of return set out in COB 6.6.51 R, with allowance for mortality (as set out in COB 6.6.84 R) charges and expenses and the relevant rate of increase in payment.

01/12/2001

Pension schemes or stakeholder pension schemes

COB 6.6.42

(1) An additional projection may be given for a pension scheme or stakeholder pension scheme where the period to maturity is five years or less. This:

(a) may be calculated using the intermediate rates of return specified in COB 6.6.51 R or COB 6.6.52 R;
(b) may use a current annuity rate calculated using a rate of return no higher than the higher rate specified in COB 6.6.51 R or COB 6.6.52 R.

(2) If the firm providing the projection offers annuities, it must use its own annuity rates.

01/11/2002

Single premium contracts

COB 6.6.43

A projection relating to a series of single premiums (other than a protected rights annuity) may be a calculation set out as if those premiums were regular premiums, provided:

(1) it is not otherwise given on a misleading basis;
(2) the firm is bound unconditionally, and by express terms of the contract, to accept all single premiums which may be paid by the customer under the contract.

01/12/2001

With-profits endowment business

COB 6.6.44

For with-profit endowment assurance where the amount of any guaranteed benefit payable on death is not calculated by reference to the total value of the premiums paid under the contract before that event:

(1) the cost of risk benefits must allow for the bonus rate or rates supported by the relevant premium (given the basic sum assured for such a policy with an appropriate office premium) calculated for each rate of return; and
(2) the rate or rates of bonus must then be applied under the policy which is the subject of the projection and be assumed to be maintained throughout the term of the policy.

01/12/2001

With-profits whole life assurance business

COB 6.6.45

For with-profit whole life assurance other than a policy the bonuses under which are added to the surrender value:

(1) the cost of risk benefits must allow for the bonus rate or rates supported by the premium (given the basic sum assured for such a policy with an appropriate office premium) calculated for each rate of return; and
(2) the rate or rates of bonus must then be applied under the policy which is the subject of the projection and be assumed to be maintained throughout the term of the policy.

01/12/2001

Contracts with reviewable administration charges

COB 6.6.46

In respect of policies with reviewable administration charges:

(1) a firm must make allowance for increases in administration charges which are reviewable at the firm's discretion, on a basis which:

(a) is fair and reasonable; and
(b) takes into account the firm's pricing policy as regards future levels of administration charges;

(2) increases must be assumed at the appropriate rates of increase in COB 6.6.48A R for type P projections and type Q projections and the rates in COB 6.6.47 R for other projections, for any contracts where:

(a) an administration charge is reviewable by the firm (whether or not any increases are contractually linked to an external index); or
(b) expenses in respect of future renewal or claims costs are expressed as monetary amounts.

01/11/2002

COB 6.6.47

Table of assumed rates of increase for policies with reviewable administration charges

This table belongs to COB 6.6.46 R

Basis of review

Assumed rate of increase

Lower rate of return

Intermediate rate of return

Higher rate of return

Administration charge reviewed in line with price increases

0.5%

2.5%

4.5%

Administration charge reviewed in line with earnings increases

01/12/2001

Contracts with rider benefits or extra premiums for underwriting risks

COB 6.6.48

In respect of a contract with rider benefits, or where an extra premium is being charged for an increased underwriting risk:

(1) the rider benefit or extra premium charged for an impaired life, hazardous pursuit, or on the grounds of occupation, must be taken into account when determining a projection;
(2) if a deduction is made from the actual premium for a rider benefit or increased underwriting risk (or both), the sum of the amounts of the relevant premium must be quoted with the projection; and
(3) for policies with rider benefits, a firm may apply the following procedure:

(a) if the policy is also available without the rider benefit, then the same values must be projected as would be projected for such a policy with the premium appropriately reduced; and
(b) if the contract is available only with one or more rider benefits, the firm must deduct a fair estimate of the cost of the extra benefits from the premium when determining the projection; if a fair estimate cannot be made, a rough estimate (rounded to the next higher 10% of the total premium payable by the policyholder) must be deducted.

01/12/2001

Rate of inflation assumptions

COB 6.6.48A

For pension schemes and stakeholder pension schemes, the following rates of inflation must be used when calculating type P projections or type Q projections:

(1) rate of increase in the Retail Prices Index (for type P projections): 2.5%;
(2) rate of increase in earnings (for type Q projections): not less than 1.5% in excess of the rate of increase in the Retail Prices Index in (1).

01/11/2002

Rate of return assumptions

COB 6.6.49

(1) The appropriate rates of return for the type of contract being projected, taken from COB 6.6.50 R - COB 6.6.52 R, must be used when calculating a projection;
(2) reduced rates of return must be used if the firm expects the rates in the tables to overstate the investment potential of a contract;
(3) reduced rates of return may be used if requested by a customer; and
(4) whenever reduced rates are used, they must be disclosed in the document containing the projection.

01/12/2001

COB 6.6.50

Rate of return assumptions for all schemes, ordinary branch non-pensions, industrial branch, friendly Society, immediate annuity and Holloway sickness policies (all monetary rates of return)

This table belongs to COB 6.6.49 R

Rate of return assumptions for all schemes , ordinary branch non-pensions, industrial branch, friendly Society, immediate annuity and Holloway sickness policies (all monetary rates of return)

Lower rate

Intermediate rate

Higher rate

(a) Non-tax-exempt business relating to schemes, ordinary branch non-pensions and industrial branch business

(b) Holloway sickness policies

(c) Tax-exempt business held within an ISA, PEP or CTF or by a friendly society, relating to schemes, ordinary branch non-pensions and industrial branch business

(d) immediate annuities

Notes:
In relation to schemes : The monetary rates of return above include any distribution of income. The rates of return may be used for contracts for units denominated in currencies other than sterling unless it is expected they will overstate the investment potential of the contract.

01/12/2001

COB 6.6.51

Rate of return assumptions for pension contracts and stakeholder pension schemes excluding contracts for immediate annuities and protected rights annuities issued in accordance with COB 6.6.11 R (1)

This table belongs to COB 6.6.49 R

Rate of return assumptions for pension contracts and stakeholder pension schemes excluding contracts for immediate annuities and protected rights annuities issued in accordance with COB 6.6.11 (1)

Lower

Intermediate

Higher

rate

(a) in deferment

Monetary rates of return

(b) after vesting -

Monetary rates of return

Y+1%

Y+3%

Y+5%

For annuities linked to the retail price index

Y-1%

Y+1%

For annuities linked to LPI (limited price indexation)

Y-1%

Y+1%

Note: For the after vesting rates of return: Y= 0.5 * ( ILG5 + ILG0) and rounded to the nearest 0.2%, with an exact 0.1% rounded down.
Where: ILG5 is the real yield on the FTSE Actuaries Government Securities Index-linked Real Yields over 5 years assuming 5% inflation, and ILG0 is the real yield on the FTSE Actuaries Government Securities Index-linked Real Yields over 5 years assuming 0% inflation.
The ILG0 and ILG5 yields to be used in the calculation of Y are the yields on the 15 February, or, where necessary, the previous working day. The rate of return Y must be updated on the following 6 April each year and used up to and including 5 April of the next year.

01/11/2002

COB 6.6.52

Rate of return assumptions for protected rights annuity projections given in accordance with COB 6.6.11 R (1)

This table belongs to COB 6.6.49 R

Rate of return assumptions for protected rights annuity projections given in accordance with COB 6.6.11 (1)

Lower

Intermediate

Higher

rate

(a) In deferment: for periods in excess of five years - real rates of return

N/A

for periods of five years or less - monetary rates of return

(b) after vesting: - for annuities linked to the retail prices index

01/12/2001

COB 6.6.53

The rates of return in COB 6.6.50 R - COB 6.6.52 R are assumed to compound annually and allow for inflation.

01/12/2001

Calculation of the reduction in yield due to the effect of charges and expenses content

COB 6.6.54

COB 6.6.55 R - COB 6.6.62 R set out the rules to be used when calculating the effect of deductions (the 'reduction in yield') to be provided within key features (COB 6.5) for all types of life policies and schemes. COB 6.6.63 G - COB 6.6.79 G provide guidance in assessing the expenses and charges relating to schemes.

01/12/2001

Basic calculation method of the reduction in yield

COB 6.6.55

(1) A firm must accumulate the adjusted premium to the end of the contract period at the relevant rate of return, making:

(a) full allowance for the charges and expenses (as described in COB 6.6.23 R); and
(b) no allowance for charges and expenses.

(2) A firm must then calculate the rate of return which, if applied (on an annual compound basis) to the adjusted premium over the contract period, without making any allowance for the charges and expenses, will produce the same sum as that calculated under (1)(a).
(3) The reduction in yield is the difference between the relevant rate of return and the rate of return found in (2).

01/12/2001

COB 6.6.56

(1) When a firm is calculating a projection, charges which relate to benefits for any mortality or morbidity risks, or a proportion of them, must be assumed not to be made:

(a) providing the assumption does not produce figures for the effect of charges deductions which suggest that the charges under the contract are lower than they actually are; and
(b) only in so far as they are attributable solely to benefits for mortality or morbidity risks, a proper apportionment being made of any composite charges.

(2) When a charge cannot be apportioned, (1) will not apply, but the firm may include in the information required to be given within a projection a statement to the effect that the reductions have been calculated without disregarding charges relating to benefits for any mortality or morbidity risks.

01/12/2001

Alternative calculation method of the reduction in yield for a life policy

COB 6.6.57

The following alternative method of calculation of the reduction in yield may be used at a firm's discretion for a life policy:

(1) The adjusted premium must be accumulated to the end of the contract period at the relevant rate of return, making full allowance for the charges and expenses (as described in COB 6.6.23 R).
(2) If the accumulated value will reach zero before the end of the contract period, the accumulation must cease at that stage; subsequent references in this rule to the contract period are to be taken where relevant as referring to that shorter calculation period.
(3) In making this calculation, the total of all charges and expenses not solely attributable to the risk benefits must be assessed separately and accumulated to the end of the contract period at the relevant rate of return.
(4) The adjusted premium must be accumulated to the end of the contract period at the relevant rate of return, making no allowance for charges and expenses.
(5) The reduction in yield must be calculated in accordance with, COB 6.6.55 R, but using the shorter calculation period specified in (2), if applicable.

01/12/2001

Other provisions

COB 6.6.58

In the case of a protected rights annuity, the effect of charges and expenses (as described in COB 6.6.23 R) may be calculated on the assumption that premiums will continue to be paid after the first year.

01/12/2001

COB 6.6.59

The reduction in yield or the effect of charges and expenses must be expressed to the nearest tenth of 1%.

01/12/2001

Unit-linked contracts with more than one fund

COB 6.6.60

(1) Where there is more than one fund into which the premiums under a unit-linked contract are expected to be paid initially (disregarding any option of the customer to require the funds to be changed):

(a) the effect of charges and expenses must be calculated separately in relation to each such fund;
(b) unless a representative figure is shown in accordance with (3), each of those reductions in yield must be shown in the information required within key features; and
(c) a brief explanation of the difference between them may be included.

(2) If any of the funds referred to in (1) is a unitised with-profits fund, the calculation relating to that fund must be made on the with-profits expenses basis as described in COB 6.6.23 R (2).
(3) If, in the case of any contract, two or more of the calculations of the effect of charges and expenses would produce results which are so similar that one may fairly be regarded as representative of the other or others, only one figure for the effect of charges and expenses need be shown, accompanied by an indication that it is a representative figure.

01/12/2001

Regular and single premium contracts

COB 6.6.61

In the case of any contract where the premiums include both a regular and a single premium:

(1) the reduction in yield should be calculated separately for the regular premiums and for the single premium; and
(2) each of those reductions in yield should be shown in the information required in COB 6.5 (Contents of key features) with a brief indication of the difference between them.

01/12/2001

Table of specimen values of the reduction in yield

COB 6.6.62

Where COB 6.6.60 R or COB 6.6.61 R applies in relation to the calculation of the reduction in yield, either:

(1) different tables must be shown with the values calculated separately for each fund or for the regular premiums and the single premiums (as the case may require); or
(2) one table may be used, but it must contain those values calculated separately as required by (1), and it must make clear to the customer (or any potential customer in the case of a financial promotion) what the different values refer to.

01/12/2001

Charges and expenses disclosure for schemes

COB 6.6.63

COB 6.6.65 G - COB 6.6.79 G set out rules and guidance on how to calculate charges and expenses (as described in COB 6.6.23 R) for schemes.

01/12/2001

COB 6.6.64

COB 6.6.65 G - COB 6.6.69 R provide rules and guidance for authorised unit trusts (and OEICs and recognised collective investment schemes) and COB 6.6.70 G - COB 6.6.74 R rules and guidance for investment trust savings schemes.

01/12/2001

Charges and expenses disclosure for authorised unit trusts

COB 6.6.65

(1) Charges and expenses as described in COB 6.6.23 R means "all explicit charges and expenses, and includes all other deductions and expenses which will or may bear upon the fund". The following paragraphs give guidance on the assessment and apportionment of expenses.
(2) Those expenses that were, or would be, reported in the Annual report and Financial Statement of authorised unit trust schemes in accordance with the Statement of Recommended Practice ("SORP") issued by the FSA, will normally provide a suitable starting point for any assessment of the level of charges and expenses. The same principles apply to funds and schemes which are not within the scope of the SORP.
(3) Where expenses are charged directly against the assets of the fund, it will normally be appropriate to express such expenses as an annual percentage charge against the fund, which is then added to other such charges. An example is a manager's periodic charge to form an aggregate percentage charge. It is reasonable to round this charge to the nearest 0.05%.
(4) Where a scheme invests in other packaged products, it will be necessary to look through to ensure that all charges and expenses which the customer will or may bear are included. Appropriate allowance may be made for any abatement to avoid double charging. If the product provider is not required to make expense disclosure in respect of such packaged products, the charges and expenses of an equivalent product from another provider should be used. In the case of investment trusts, the method in COB 6.6.70 G (4) should be used.
(5) Where the unit trust invests in other unit trusts, charges and expenses will be based on a reasonable distribution of assets that takes account of the investment philosophy of the unit trust.

01/02/2004

Representative unit trust

COB 6.6.66

(1) Where a document refers to investment in a number of trusts, charges and expenses (as described in COB 6.6.23 R) applicable to the trusts selected by the customer should be used. Where this is not practicable, it is permissible to use the charges and expenses of a representative unit trust.
(2) The representative unit trust will normally be the one that is most likely to be selected by the customers to whom the material is issued. Where advantage is taken of this option, the document should include information which shows the differences if other trusts are selected. The normal presentation will be to show the differences as a reduction of investment return, or as an adjustment to the Table in key features. Where the reduction of investment return is used, it will not be necessary to show differences unless the rounded difference is at least 0.1% and the unrounded difference is at least 0.05%.

01/12/2001

Types of expenses

COB 6.6.67

(1) The following are those expenses and costs of investment that firms should take into account when making their calculations. The list is not comprehensive. These are in addition to explicit charges.
(2) Examples of expenses are:

(a) registration fees;
(b) safe custody fees;
(c) trustees' fees;
(d) handling charges;
(e) audit fees;
(f) regulatory fees and subscriptions;
(g) costs of investment management, but excluding dealing costs of the underlying portfolio, and costs associated with routine management and servicing of existing property investments;
(h) bid/offer spread in the pricing of units.

(3) The spread in (h) should be on a basis that fairly represents the expected levy of such spread in the firm's experience of normal trading conditions.
(4) The expenses should include allowance for any value added tax which is not recoverable.

01/12/2001

Translation to fund level

COB 6.6.68

(1) The expenses and explicit charges need to be adjusted for any expected variation in costs from the period of the report to the period relevant to the disclosure expenses if such variation is believed to make a material difference.
(2) The adjusted expenses should be expressed as a proportion of the relevant fund. For established funds, the relevant fund is the average size of the fund for the period of the report.
(3) Where the use of the figure calculated as in (2) would be misleading, a fair estimate of the size of the relevant fund which is consistent with the adjusted expenses should be used. The same method should be used in the case of new funds. In determining the reasonable levels of expense to be assumed, account should be taken of the expense attributable to the existing fund which most closely corresponds to it, with proper regard to material differences in cost.

01/12/2001

Review of expenses

COB 6.6.69

The expenses used in calculations must be reviewed whenever material changes in the levels are identified which would mean that the disclosed amounts are misleading. In any event the expenses must be reviewed at least once a year.

01/12/2001

Charges and expenses disclosure for investment trust savings schemes charges and expenses

COB 6.6.70

(1) Charges and expenses as described in COB 6.6.23 R should be taken to include all explicit charges and, in addition, all other deductions and expenses which are not financed from explicit charges. These include deductions and expenses within the trust.
(2) The method is to identify all expenses that will be borne by the customer, and these will include not only the cost of acquiring a holding but also the cost of disposing of the investment.
(3) Where expenses are charged directly against the assets of the investment trust, it will normally be appropriate to express the expenses as an annual percentage charge against the trust, which is then added to such charges, for example, a periodic management fee, to form an aggregate percentage charge. It will be reasonable to round to the nearest 0.05%.
(4) Where an investment trust company (A) invests in another investment trust company (B), it will be necessary to look through to ensure that all charges or expenses which the customer will or may bear are included. Appropriate allowance may be made for any abatement to avoid double charging. Charges and expenses will be based on a reasonable distribution of assets that takes account of the investment philosophy of the investment trust company (A). If the investment trust company (B) is not required to make expense disclosure in respect of such assets, the charges and expenses of a similar company should be used.

01/12/2001

Representative investment trust company

COB 6.6.71

(1) Where a document refers to investment in a number of investment trusts, charges and expenses (as described in COB 6.6.23 R) applicable to the trusts selected by the customer must be used. Where this is not practical, it is permissible to use the charges and expenses of a representative investment trust company.
(2) The representative investment trust company will normally be the one that is most likely to be selected by the customers to whom the material is issued. Where advantage is taken of this option, the document must include information which shows the differences if other trusts are selected. The normal presentation will be to show the differences in the other reduction of investment return, or as an adjustment to the Table in key features. Where the reduction of investment return is used, it will not be necessary to show differences unless the rounded difference is at least 0.1% and the unrounded difference is at least 0.05%.

01/12/2001

Types of expense

COB 6.6.72

(1) Expenses may be incurred either in acquiring or in holding an investment in an investment trust company. The list in (2) is not comprehensive and, in respect of other expenses, the list sets out the type of expense that should be included. The report and accounts of the investment trust company will normally provide a starting point in assessing the expenses that are charged against the assets of the investment trust company. These are in addition to disclosable charges.
(2) Expenses to be included will be of four main types:

(a) deductions levied against the assets of the investment trust company;
(b) management expenses levied against the assets of the investment trust company; these expenses include management fees plus any management costs financed from commission received, directors' fees, pension contributions, non-recurring expenses, all other professional and regulator's fees and subscriptions, rents paid, depreciations, custody fees, audit fees and all other pre-tax expenses (except for interest paid); management expenses include marketing costs, if any;
(c) expenses borne by the customer in acquiring or disposing of investment trust shares; these include adviser's commission (if any), stockbroker dealing commission on purchases and sales, stamp duty and withdrawal charges;
(d) investment spread in the pricing of the investment trust shares.

(3) Expenses should include allowance for any value added tax which is not recoverable.
(4) Expenses in (2)(c) and the spread in (2)(d) should be on bases that fairly represent the expected level of such expenses and spread. Where appropriate, a representative level of expenses and the spread should be used.

01/12/2001

Translation to trust level

COB 6.6.73

(1) Having identified all the expenses in COB 6.6.72 G (2), a firm needs to express them as rates of charges and expenses (as described in COB 6.6.23 R) that can be used in projections and key features.
(2) The process is as follows.

(a) The expenses in COB 6.6.72 G (2)(a) and (b) should be expressed as a proportion of the overall fund using net asset value: For established companies, the relevant fund is taken to be based on the average size of the investment trust company for the period of assessment.
(b) The expenses in COB 6.6.72 G (2)(c) and (d) will usually be expressed as a proportion of the fund based on share price or the amount of the investment, as appropriate. Some expenses will be a one-off expense or spread and some will be in the form of an annual charge.
(c) The rates of charges and expenses calculated under (a) and (b) should be added together. The fact that the calculation at (a) used net asset value can be ignored as it is assumed that the level of discount or premium remains unaltered.

(3) The charges and expenses will normally be historic and need to be adjusted for any expected variation in the level of costs from the period used in the assessment to the period relevant to the disclosure of the expenses if such variation is believed to make a material difference.
(4) Where the use of the figure calculated in (3) would be misleading, a fair estimate of the size of the company which is consistent with the adjusted expenses should be used. The same method should be used in the case of new investment trusts. In determining the reasonable levels of expense to be assumed, account may be taken of the expenses attributable to the existing investment trust which most closely corresponds to it, but with proper regard to any material differences in cost.
(5) Set-up costs may be amortised over a limited period not normally exceeding five years.

01/12/2001

Review of expenses

COB 6.6.74

01/12/2001

Example of the calculation of reduction in investment return

COB 6.6.75

COB 6.6.76 G - COB 6.6.78 G contain an example which has been prepared to assist understanding of the method of calculating the reduction in investment return. However, the figures should not be regarded as representative or indicative of likely levels of charges and expenses to be expected.

01/12/2001

General

COB 6.6.76

(1) The reduction in investment return shows the effect of all charges and expenses to the customer.
(2) The rates of investment return allow for all tax and withholding tax for which the product provider is responsible. The current rate of tax may be used to calculate the net distribution of income. Where appropriate, the net distributions are offset from the rate of investment return.
(3) It is not necessary to allow for daily changes so that monthly steps are acceptable.
(4) The rates of return are assumed to compound annually. The twelfth root is used to calculate the monthly rate. This is different from the fund management charge, where normally one twelfth of the annual rate is deducted monthly.
(5) The bid/offer spread should be allowed as an initial charge so that subsequent figures are on the basis of the bid price, except where the context requires allowance to be made for the spread.

01/12/2001

The parameters

COB 6.6.77

(1) Contract details: unit trust for a term of 10 years with a single investment of £6,000 (SP).
(2) Distributions: at the rate of 2.4% per annum, distributed as 1.2% of the offer value at the end of each half year.
(3) Charges:

(a) initial charge of 3% of investment (IC);
(b) fund management charge of 1/12 of 1.25% per month (FMC) on distribution units;
(c) attributable expenses of 1/12 of 0.25% per month (AE);
(d) investment spread of 3% (IS) making total bid/offer spread of 6%.

(4) Calculation:

(a) investment of £6,000 (SP) less (IC+IS) giving an initial bid value of £5,640
(b) interest of 6% pa or 0.4868% per month less (FMC + AE) = 1.004868 x (1- 0.015/12) 1 = 0.3612% per month
(c) the value after 10 years as shown in COB 6.6.79 G is £6,720
(d) the internal rate of return necessary to generate £6,720 plus distributions over 120 months from an initial investment of £6,000 is 0.3030% per month or 3.7% per annum
(e) one method of creating the table is to use 20 periods of six months, each of which end with the payment of a distribution.
(f) after 6 months:

(i) the bid value of the fund before the distribution is 6000 x 0.94 x (1.003612)^6 = £5,763
(ii) the distribution is 0.012 x 5763/0.94 = £73
(iii) the fund carried forward is 5763 - 73 = £5,690
(iv) after the end of Year 1, that is, after the second 6 months
(v) the bid value of the fund before the distribution is 5690 x (1.003612)^6 = £5,814
(vi) the distribution is 0.012 x 5814/0.94 = £74
(vii) the fund carried forward is 5814 - 74 = £5,740
(viii) this bid value is disclosed as there is no exit penalty as what you might get back.

(g) the "effect of deductions" is calculated from the accumulation of the investment with no allowance for charges and expenses but with allowance for income:

(i) the accumulated fund after 1 year with no allowance for charges is [6000 x (1.004868)^6 - 73] x (1.004868)^6 - 74 = £6,210
(ii) the "effect of deductions" is this figure less "what you might get back", that is, £6,210 - £5,740 = £470

(h) this process is continued throughout the term of the table; after 10 years, the accumulated investment at 0.4868% per month with no allowance for charges and expenses but with allowance for the same distributions of income is £8,621; "What you might get back" is £6,723 so the "effect of deductions" is the difference or £1,898;
(i) the deduction in investment return is determined by calculating the rate of interest which accumulates the investment with no allowance for charges and expenses but with allowance for income to £6,723; this is 0.3030% per month (0.4868% per month gives £8,621); the yearly rate is (1.00303)^12 - 1 or 3.7%.

01/12/2001

COB 6.6.78

In COB 6.6.79 G projected amounts are rounded down to three significant figures.

01/12/2001

COB 6.6.79

Specimen table of presentation of the effect of charges and expenses

This table belongs to COB 6.6.75 G

At end of year

Investment to date £

Income to date £

Effect of deductions to date £

What you might get back £

6,000

148

470

5,740

6,000

451

715

5,940

6,000

766

998

6,150

6,000

1,600

1,890

6,720

The last line in the table shows that over 10 years the effect of total charges and expenses could amount to £1,890.

Putting it another way, this would have the same effect as bringing the illustrated investment growth from 6.0% a year down to 3.7% a year.

01/12/2001

Assumptions for pension annuities

COB 6.6.80

The formulae shown must be used for calculating the factors for converting a retirement fund into an annuity. The formulae in COB 6.6.81 R assume that the annuity will be payable monthly in advance for a term certain of n years (typically five):

(1) for an RPI-linked and LPI-linked annuity (excluding a protected rights annuity): use Factor (1);
(2) for an annuity which is static or has fixed rates of escalation: use Factor (2);
(3) for a spouse's reversionary annuity (excluding a protected rights annuity, and whether or not there is overlap with any guaranteed period under the associated single life annuity): use Factor (3);
(4) [deleted]
(5) for a protected rights annuity: use Factor (5).

01/11/2002

COB 6.6.81

Table of formulae for pension annuity factors

This table belongs to COB 6.6.80 R and COB 6.6.82 R

Factor

Formula

(1)

(1+E)*[ä _n ⁽¹²⁾ + D _x+n /D _x * ä _x+n ⁽¹²⁾ ]

(2)

(1+E)*[ä _n ⁽¹²⁾ + D _x+n /D _x * ä _x+n ⁽¹²⁾ ]

(3)

(1+E)*[a _y -a _x:y ]

(4)

(1+E)*[ä _f ⁽¹²⁾ + 0.45*(a _m -a _m:f )]

(5)

(1+E)*[ä _f ⁽¹²⁾ + 0.50*(a _m -a _m:f )]

(6) namely a _x ⁽¹²⁾

= a _x + 13/24

(7) namely ä _x:t ⁽¹²⁾

= 13/24 * a _x:t + 11/24* a _x:t

01/12/2001

COB 6.6.82

(1) All factors must be rounded to three decimal places before being applied to the retirement fund.
(2) In the formulae the letters a and D have their normal actuarial notation meanings. In formulae for two lives, x is the member and y is the spouse , and for the protected rights formulae, f indicates the use of female mortality and m that for males. In addition, a monthly annuity is either Factor (6) or (7).
(3) For retirement other than on a birthday, the factors must be obtained by linear interpolation on complete months. Where a member is not able (for practical reasons or otherwise) to determine the exact age at retirement, it must be assumed that the exact age at retirement is then the age at the last birthday.
(4) Where the projection is of an annuity after taking a tax-free lump sum, the table must be used with the retirement fund reduced by the projected tax-free lump sum before rounding. Any tax-free lump sum illustrated should be rounded to three significant figures, unless the lump sum is equal to the amount of a loan.
(5) Where a retirement fund includes both protected rights and non-protected rights benefits, the appropriate factors are to be used for each relevant part of the total fund.
(6) Where there are protected rights funds and the person is not expected to be married at retirement, an illustration of single life pensions may be provided. The factor must be calculated using the same assumptions as formula (5) in COB 6.6.81 R but ignoring the reversionary annuity part of the formula.
(7) For type P projections, the annuity should assume 50% spouse's reversionary pension unless the firm has evidence that a different assumption would be more appropriate.

01/11/2002

COB 6.6.83

In the formulae in COB 6.6.81 R, the allowance for expenses (E) is 4% for all annuities.

01/11/2002

COB 6.6.84

In the formulae in COB 6.6.81 R, mortality rates must be calculated as follows:

(1) the mortality tables to be used are PMA92 (for males) and PFA92 (for females) appropriate to the individual's year of birth; these tables are published by the Faculty of Actuaries and Institute of Actuaries;
(2) where there are two lives concerned, for reversionary and for protected rights annuities, the husband is normally to be taken as being three years older than his wife; where the firm is aware that the wife is more that six years younger than her husband, an exact calculation must be performed using actual ages;
(3) protected rights annuities must be calculated for both sexes on the basis that the member experiences female mortality and the spouse experiences male mortality.

01/11/2002

COB 6.6.85

In the formulae in COB 6.6.81 R, the mortality functions must be calculated at a rate of interest J, where:

(1) J = (1 + I)/(1 + R) - 1;
(2) R is the rate of escalation increase appropriate for the customer in formulae (2) and (3) in COB 6.6.80 R; it is 3% for pre-April 1997 protected rights benefits in formula (4), and zero otherwise;
(3) the rate of return assumptions (1) are as set out in the tables in COB 6.6.50 R - COB 6.6.52 R with real rates of return being used for formulae (1) and (5) in COB 6.6.81 R and monetary rates otherwise; and
(4) different factors will need to be calculated where a projection is being prepared on lower and higher rates of return, and where appropriate also the intermediate rate.

01/12/2001

Pension transfer value analysis requirements content

COB 6.6.86

COB 6.6.87 R - COB 6.6.93 R outline how a pension transfer value analysis should be prepared. A pension transfer value analysis should provide a comparison between the potential benefits available to the customer from an occupational pension scheme of which he is a member and the potential benefits that would be available to him under a personal pension or buy-out contract.

01/12/2001

Basis of a pension transfer value analysis

COB 6.6.87

(1) The basis for the pension transfer value analysis must be clear, fair and not misleading.
(2) The information analysed must include details relevant to the customer's circumstances:

(a) spouse's, dependants' and children's pensions;
(b) early retirement provision, including provision for retirement in ill-health;
(c) a transfer value quotation detailing:

(i) guarantee period;
(ii) pre- and post-April 1988 Guaranteed Minimum Pension and excesses;
(iii) revaluation rates both in deferment and payment, and whether they are guaranteed or discretionary;
(iv) tax-free cash arrangements;

(d) lump sum death benefits;
(e) transfer club arrangements, if applicable;
(f) relevant earnings;
(g) period of service;
(h) scheme details (for example, benefits, bridging pensions, guarantee periods, position before and after normal retirement date, history of discretionary increases);
(i) whether members' benefits have been equalised for service from 17 May 1990;
(j) ill-health benefits.

01/12/2001

Required comparisons

COB 6.6.88

The analysis must contain the following:

(1) where the period before benefits are assumed to commence is one year or more:

(a) a statement of the rates of return, calculated as in COB 6.6.92 R (2), which would have to be achieved under the transfer contract in order to provide the same level of benefits as those which would be afforded by the occupational pension scheme if the customer were to retire at normal retirement date ("the Target Benefits");
(b) if in the firm's opinion early retirement would be materially more favourable to the customer than retirement at normal retirement date, a statement of the rates of return, calculated as in COB 6.6.92 R (2), which would have to be achieved under the transfer contract in order to provide the same pension as that afforded by the occupational pension scheme, assuming early retirement at a date on which the customer may be expected, or will have the option, to retire;
(c) a statement of the value of the benefits payable on the death of the customer, under the transfer contract and under the occupational scheme, on the assumption that the customer were to die on the day after the date on which the transfer contract is assumed to have commenced; comparisons assuming other dates of death may be included if they are likely to enhance understanding of the differences between the benefits payable under the transfer contract and the occupational pension scheme;

(2) where the period before benefits are assumed to commence is less than one year:

(a) a statement of the annuity payable under the transfer contract and of the comparable Target Benefits;
(b) where the normal retirement date under the occupational pension scheme is not within a year, a statement of the rates of return, calculated as in COB 6.6.92 R (2), which would have to be achieved under the transfer contract in order to provide the Target Benefits.

01/12/2001

COB 6.6.89

(1) In all cases (except in a case within COB 6.6.88 R (2) in respect of the annuity) a statement of the assumptions must be provided which complies with the requirements of COB 6.6.90 R.

01/12/2001

Required assumptions

COB 6.6.90

(1) The assumptions in COB 6.6.91 R must be made for the purposes of the required calculations, except as envisaged by this rule.
(2) The assumptions may be varied only to incorporate more cautious assumptions.
(3) If an annuity interest rate different from the Annuity Interest Rate (as specified in COB 6.6.91 R) is used, it must be the interest rate for annuities in payment provided that it is a multiple of 0.5% per annum and must not exceed the Annuity Interest Rate.
(4) Where the occupational pension scheme has a record of discretionary increases in pension, the assumptions must be consistent with the published practice of the trustees, if any, or based on a comparison of the increases granted over the last five years with a published index. It must be assumed that increases will continue, and allowance must be made for continuation by:

(a) relying on any statement by the trustees of their practice;
(b) comparing recent experience with the increase in the retail price index and restricting the future allowance to a maximum of the increase in the retail price index;
(c) making a default assumption of limited pension indexation;
(d) assessing the likelihood whether such increases will continue to be paid.

Figures may be provided showing the effect of applying a factor representing the likelihood of such continuation.

01/11/2002

COB 6.6.91

Assumptions to be made

This table belongs to COB 6.6.90 R

Formula

Annuity interest rate ("AIR")

The intermediate after vesting monetary rate of return in COB 6.6.51 (b)

Retail prices index

2.5%

Average earnings index ("AEI") and section 21 orders

4.0%

Pre-retirement limited price indexation revaluation

2.5%

Post-retirement limited price indexation increases

2.5%

Index-linked pensions

The rate of intermediate return in COB 6.6.51 for annuities linked to the retail price index

Note:
The interest rate in deferment must not be assumed but calculated as required by COB 6.6.92.

01/11/2002

Method of calculation

COB 6.6.92

(1) In calculating the Target Benefits for the purposes of the comparisons required by COB 6.6.88 R, regard must be had to benefits which commence at different times.

(a) Where a benefit becomes payable at a different age from the age at which the Guaranteed Minimum Pension becomes payable, the benefit must be valued from its appropriate commencement date.
(b) In the case of pensions payable only for a limited period, an allowance must be made.

(2) The method of calculating the rate to be used for the purpose of the comparisons required by COB 6.6.88 R is:

(a) make the assumptions required by COB 6.6.91 R;
(b) on those assumptions, calculate the Target Benefits;
(c) calculate, in accordance with COB 6.6.34 R- COB 6.6.62 R which relate to the calculation of projections, the interest rate in deferment necessary to attain a transfer value sufficient to provide benefits equal to the Target Benefits.

01/12/2001

Required disclosures

COB 6.6.93

The analysis must also contain:

(1) a list of all the main assumptions made for the purposes of the analysis, set out consecutively and with equal prominence;
(2) a warning as to the differences between the amounts of benefit under the occupational pension scheme and the level of benefits under the proposed transfer contract which depends on future investment performance and on interest rates at the time of retirement;
(3) a description of any differences in the dates on which the pensions become payable, for example in the case of a protected rights pension under a personal pension scheme which will not become payable until the customer attains the State retirement age;
(4) a warning of any shortfall in the value of the death benefits provided by the transfer contract and, where there is such a shortfall, if appropriate, a quotation for provision to make good the shortfall.

01/12/2001

COB 6.7

Cancellation and withdrawal

01/12/2004

Application

COB 6.7.1

COB 6.7 applies to:

(1) a product provider;
(1A) a CTF provider;
(2) an insurer which provides pure protection contracts;
(3) a firm when acting as an EIS manager, ISA manager, CTF provider or plan manager, or when selling on to a customer units which the firm has bought or redeemed as principal for that purpose;
(4) a deposit-taking firm, when acting as ISA manager, CTF provider or as the firm responsible for holding deposits in respect of another firm's cash deposit ISA or cash deposit CTF;
(5) the operator of a stakeholder pension scheme;
(6) a firm which enters into distance contracts with retail customers, the making or performance of which constitutes, or is part of:

(a) dealing as agent, advising or arranging in relation to designated investments, unless the distance contract is concluded merely as a stage in the provision of another service by the firm or another person (see COB 1.10.6 G);
(b) any other designated investment business; or
(c) accepting deposits;

but not including a distance contract entered into by an appointed representative as principal.

09/10/2004

COB 6.7.2

COB 6.7 (Cancellation and withdrawal) does not act to cancel distance contracts entered into by an appointed representative as principal to provide intermediation services to a retail customer. Regulations 9 (Right to cancel) to 13 (Payment for services provided before cancellation) of the Distance Marketing Regulations may apply instead (see regulation 4(3)).

09/10/2004

COB 6.7.4

COB 6.7.5 G summarises the applicable cancellation and withdrawal rights and the maximum period of reflection. Firms should have regard to the detailed rules and guidance in all cases, particularly for the detailed exemptions.

09/10/2004

COB 6.7.5

Cancellable investment agreements.

This table belongs to COB 6.7.4 G

Cancellable investment agreements

Post-sale right to cancel?

Pre-sale right to withdraw?

Maximum period of reflection (but see COB 6.7.11 R)

A. Contracts where the right arises regardless of means of sale.

Appropriate personal pension (APP)

Yes^{5, 6}

30 days

Cash deposit ISA

Yes^{5, 6}

14 days

Life policy (including pension policy, pension annuity or within ISA or CTF)

Yes^{1, 5, 6, 12}

No¹

30 days

Personal pension contract

Yes^{1, 5, 6}

No¹

30 days

Stakeholder pension scheme (SHP)

Yes^{1, 5, 6}

No¹

30 days

Certain variations of existing life policies, pension contracts and SHP's

Yes^{1, 5, 6, 8}

No¹

30 days

B. Contracts where the right arises only if advice is given or if sold by distance contract.

Units in an AUT, recognised scheme or ICVC (within an ISA or PEP)

(1) if sold by distance contract;

(2) if sold otherwise with advice

Yes⁴

No⁴

14 days

Units in an AUT, recognised scheme or ICVC (within a CTF):

(1) if sold by distance contract

Yes^{10, 12}

(2) non-stakeholder CTFs not sold by distance contract sold with advice

Yes^{11, 12}

(3) non-stakeholder CTF not sold by distance contract sold without advice

(4) stakeholder CTFs not sold by distance contract

ISA, PEP or CTF not mentioned in any other row

(1) if sold by distance contract

Yes^{5, 6, 12}

14 days

(2) if sold otherwise with advice

Yes^{3, 9}

7 days

Units in an AUT, recognised scheme or ICVC (outside an ISA, PEP or CTF)

(1) if sold by distance contract

(2) if sold otherwise with advice

Yes

14 days

EIS

(1) if sold by distance contract

Yes^{5, 6}

14 days

(2) if sold otherwise with advice

Yes³

7 days

C. Contracts where the right arises for distance contracts only

Distance contract to accept deposits

Yes^{5, 6}

14 days

Distance contract not mentioned in another row the making or performance of which constitutes, or is part of, designated investment business

Yes^{5, 6, 7}

14 days

Notes:

1. For a pension annuity or pension transfer (and a relevant variation), the firm can, in certain circumstances, choose to provide the right to cancel, in whole or part, through a right to withdraw in COB 6.7.19 R. A firm may offer a right to withdraw, even where there is no right to cancel.

2. [Deleted]

3. There is no right to withdraw for a second or subsequent EIS or ISA, or (for an EIS or non-packaged product ISA or PEP) where the firm has previously disclosed to the customer that no such rights will apply.

4. For units in an AUT, recognised scheme or ICVC (within an ISA or PEP), the firm can choose to offer a seven-day pre-sale right to withdraw rather than a post-sale right to cancel (see COB 6.7.14 (1)). There is no right to cancel or withdraw for a second or subsequent ISA.

5. There is no post-sale right to cancel for a distance contract where the price depends on fluctuations in the financial market place outside the firm's control which may occur during the cancellation period.

6. There is no post-sale right to cancel for a distance contract:

(a) where the performance of the distance contract has been fully completed by both parties at the customer's express request before the customer exercises his right to cancel; or

(b) where a firm has an initial service agreement with the customer and the contract is in relation to a successive operation or separate operation of the same nature under that agreement (see COB 1.11.3 R).

In the case of life policies held within a CTF sold by distance contract, the right to cancel applies only to any initial service agreement.

7. For a distance contract to give advice, arrange deals, or deal as agent see COB 1.11.3 R (Distance contracts for intermediation services).

8. There is no right to cancel for variations of life policies held within a CTF.

9. For contracts relating to a CTF, there is no right to withdraw.

10. The initial service agreement is cancellable.

11. The cancellation rules that apply are the same as those that apply to the underlying investments.

12. Where a right to cancel applies to an agreement relating to a CTF that has been opened, the money may be reinvested but will not be returned to the private customer.

09/10/2004

Purpose

COB 6.7.6

COB 6.7 reinforces Principle 6 (Customers' interests), which requires a firm to pay due regard to the interests of its customers and treat them fairly. In certain circumstances, customers who are entering into an investment agreement will be entitled to a period of reflection during which they can decide whether to proceed with their purchase.

09/10/2004

Post-sale right to cancel

COB 6.7.7

A retail customer has a right to cancel:

(1) a contract specified in row 1 of COB 6.7.15 R or COB 6.7.17 R, unless the right to cancel is disapplied or replaced by anything in row 2 of COB 6.7.15 R or COB 6.7.17 R;
(2) a contract for a stakeholder pension scheme for which a right to cancel applies under COB 6.7.12 R;
(3) a contract for a cash deposit ISA, unless the right to cancel is disapplied for a distance contract by case 15 of row 2 to COB 6.7.17 R, or a cash deposit CTF if the cash deposit CTF is sold by distance contract;
(4) a variation of a life policy, pension contract or stakeholder pension scheme for which a right to cancel applies under COB 6.7.23 R, COB 6.7.23A R and COB 6.7.26A R.

11/01/2004

COB 6.7.8

The trustees of an occupational pension scheme or the trustees and managers of a stakeholder pension scheme must be treated so far as necessary as a retail customer for the purposes of the cancellation rules, and acquire the same right to cancel as a retail customer.

09/10/2004

COB 6.7.9

(1) COB 6.7.8 R applies when trustees purchase life policies or schemes as investments of their pension schemes. Individual members of stakeholder pension schemes have a right to cancel initial membership of the scheme and, in some circumstances, a subsequent variation of their contributions.
(2) A product provider or operator of a stakeholder pension scheme may be unsure whether any of the situations in row 2 of COB 6.7.17 R applies to the contract in question. In such circumstances the product provider or operator of a stakeholder pension scheme may find it convenient to contract with an intermediary for the provision of documentary evidence needed to confirm the status of customers. However, the responsibility for ensuring compliance with the cancellation rules remains with the product provider or operator of a stakeholder pension scheme.

09/10/2004

Cancellation period

COB 6.7.10

When a retail customer has a right to cancel under COB 6.7.7 R, that right must (unless COB 6.7.11 R applies) be exercised:

(1) (in the case of a life policy, personal pension policy, personal pension contractor stakeholder pension scheme) within 30 days; or
(2) (in any other case) within 14 days.

09/10/2004

COB 6.7.10A

The cancellation period begins on:

(1) (other than for distance contracts, cash deposit ISAs and CTFs) the date the customer receives the reminder notice of his right to cancel in accordance with COB 6.7.30;
(2) (for distance contracts , cash deposit ISAs and CTFs) the later of:

(a) (for a life policy ) the day the retail customer is informed that the contract has been concluded; or
(b) (for any other contract) the day of the conclusion of the contract; or
(c) the day on which the retail customer receives the contractual terms and conditions and other information required by COB 3.9, COB 4.2 or COB 6, as applicable.

09/10/2004

COB 6.7.11

Where the terms of the firm's contract give the retail customer a longer period to cancel (that is, in excess of the 14 or 30 days specified), the firm must disclose in the information about the right to cancel the differences between the retail customer's rights under COB 6.7.10 R and the terms of the contract, which operate independently.

09/10/2004

Right to cancel a stakeholder pension scheme

COB 6.7.12

(1) A retail customer who has entered into a contract for a stakeholder pension scheme has a right to cancel, unless the right to cancel is disapplied for a distance contract by case 15 of row 2 to COB 6.7.17 R.
(2) When the retail customer has entered into a contract for a stakeholder pension scheme involving recurring contributions to that stakeholder pension scheme, only the first contribution will attract a right to cancel provided that:

(a) the intention or option to make regular contributions has been disclosed in advance of the retail customer entering into the investment agreement; and
(b) the retail customer's intention to make regular contributions is evidenced.

09/10/2004

COB 6.7.13

For the purposes of COB 6.7.12 R (2)(a), disclosure of the option to make regular contributions may, for example, take place in key features. For the purposes of COB 6.7.12 R (2)(b), a retail customer's intention to make regular contributions could, for example, be demonstrated by the establishment of a direct debit mandate or instructions to an employer to deduct regular contributions from salary.

09/10/2004

Pre-sale right to withdraw

COB 6.7.14

A retail customer has a right to withdraw an offer to enter into:

(1) an EIS, ISA or PEP:

(a) following advice on investments;
(b) which is not a distance contract;
(c) unless a right to cancel is offered under COB 6.7.7 R (3), COB 6.7.15 R or COB 6.7.17 R; and
(d) subject to cases 8 and 9 of row 2 COB 6.7.17 R;

the right to withdraw procedures are that the offer made by the customer to enter into the contract cannot be accepted by the firm until at least seven days after the offer is made; or
(2) a pension annuity or a pension transfer (or a relevant variation), to the extent that the right to cancel is provided through a right to withdraw under the procedures set out in COB 6.7.19 R.

09/10/2004

COB 6.7.15

Cancellable contracts and exceptions - life

This table belongs to COB 6.7.7 R (1).

Cancellable contracts and exceptions- life

Long-term insurance contracts which a retail customer has a right to cancel under COB 6.7.7 R (1) (subject to row 2):

Row 1

life policy (whether or not held within an ISA or CTF - see notes 1, 2, 3, 6 and 7 in COB 6.7.16 R) (see COB 6.7.23 R regarding variation of an existing life policy);

appropriate personal pension which is a pension policy;

pure protection contract.

Row 2

There is no right to cancel where any one or more of the following cases applies:

pension fund management policy (but see note 5 in COB 6.7.16 R);

life policy that relates to or is associated with securing benefits under a defined benefits pension scheme (but see note 5 in COB 6.7.16 R);

any life policy for a term of six months or less (unless note 3 in COB 6.7.16 R applies) (see also note 5 in COB 6.7.16 R);

pension policy or stakeholder pension scheme funded (wholly or in part) from payments derived from:

(a)

a pension transfer, to the extent that the right to cancel is provided through the right to withdraw (see COB 6.7.14 R (2)), using the cancellation substitute in COB 6.7.19 R; or

(b)

compensation or redress paid by a firm following a review undertaken in relation to a complaint;

traded life policy;

life policy effected by the trustees of an occupational pension scheme or the employer, or the manager or trustees of a stakeholder pension scheme that represents a:

(a)

pension buy-out contract; or

(b)

purchase of a without-profits deferred pension annuity; or

(c)

defined benefits pension scheme or a single premium payment to any occupational pension scheme with a pooled fund (that is, underlying investments are not earmarked for individual scheme members); or

(d)

purchase made to insure and secure members' pension benefits under a money-purchase occupational scheme or stakeholder pension scheme (unless it is the master, first or only policy);

pension annuity that is:

(a)

due to commence within a year and a day of the contract, to the extent that the right to cancel is provided through the right to withdraw (see COB 6.7.14 R (2)), using the cancellation substitute in COB 6.7.19 R; or

(b)

funded (wholly or in part) from compensation or redress paid by a firm following a review undertaken in relation to a complaint;

the retail customer, other than an EEA ECA recipient , at the time he signs the application, is habitually resident:

(a)

in an EEA State other than the United Kingdom (but see note 4 and note 5 in COB 6.7.16 R); or

pure protection contract effected by the trustees of an occupational pension scheme, an employer or a partnership to secure benefits for employees or the partners in the partnership;

10.

life policy which is a distance contract where the price depends on fluctuations in the financial market place outside the firm's control which may occur during the cancellation period;

11.

the contract is a distance contract where:

(a)

the performance of the distance contract has been fully completed by both parties at the retail customer's express request before the retail customer exercises his right to cancel; or

(b)

a firm has an initial service agreement with the retail customer and the contract is in relation to a successive operation or separate operations of the same nature under that agreement (see COB 1.10.2 G).

09/10/2004

COB 6.7.16

Notes to cancellable contracts and exceptions - life

This table belongs to COB 6.7.15 R

Notes to COB 6.7.15R:

Recurring single premium life policy: Under certain conditions, only the first premium in what might be a series of premiums (for example, in the case of a mini-ISA insurance component) attracts cancellation rights under COB 6.7.7 R (1). The conditions are:

(a) the option to make a series of single premium payments is disclosed at outset (for example, in the key features); and

(b) the intention is evidenced (for example, by the retail customer establishing a direct-debit mandate).

Multiple contracts: Where a retail customer enters into a set of contracts at the same time (for example, the different components held within a maxi-ISA and with the same firm), and that set is being purchased to fulfil one investment objective of the retail customer, the firm may treat the multiple contracts as being one contract for the purposes of COB 6.7. But if it does so, the firm must ensure that the customer retains a right to cancel each contract separately. This note applies also to a group of contracts of insurance, for example, term assurance contracts which have been established as part of a specific marketing arrangement. Such an arrangement may not have an investment objective.

A purchaser of a single premium pension policy has a right to cancel where the designated retirement date is within six months of the date of the policy , unless the policy falls within case 1, 4 or 7(b) of row 2.

For a customer , other than an EEA ECA recipient , habitually resident in an EEA State other than the United Kingdom , firms are reminded that they may need to apply cancellation in accordance with the requirements in that EEA State.

This exemption from giving a right to cancel does not apply for distance contracts.

In the case of life policies held within CTFs that are distance contracts, the initial service agreement is cancellable.

If the CTF has been opened the life insurer must not cancel the life policy until it has new instructions to deal with the proceeds in accordance with the CTF Regulations.

In relation to Revenue allocated accounts, the life insurer must not accept any additional contributions until the cancellation period has expired without the right to cancel being exercised.

09/10/2004

COB 6.7.17

Cancellable contracts and exceptions - non-life

This table belongs to COB 6.7.7 R (1) and COB 6.7.14 R (1)

Cancellable contracts and exceptions - non-life

Contracts which a retail customer has a right to cancel under COB 6.7.7 R (1) (subject to row 2):

Row 1

pension contract (see notes 1, 2 and 4 in COB 6.7.18 R);

appropriate personal pension which is a pension contract (see note 4 in COB 6.7.18 R);

subscriptions (but see notes 1, 2 and 5 in COB 6.7.18 R) which can be invested only in units (whether or not held within an ISA, PEP or, pension contract ) in an AUT , recognised scheme or ICVC purchased from:

(a)

the operator; or

(b)

its associate acting as an ISA manager or plan manager;

distance contracts (but see notes 6 and 8 in COB 6.7.18 R) (whether or not held within a CTF ) (other than for a life policy, stakeholder pension scheme, cash deposit ISA, cash deposit CTF or a contract in A, B or C) the making or performance of which by the firm constitutes or is part of:

(a)

dealing as agent, advising or arranging in relation to designated investments, unless the distance contract is concluded merely as a stage in the provision of another service by the firm or another person (see COB 1.9.2 G (3)); or

(b)

any other designated investment business; or

(c)

accepting deposits.

subscriptions (but see note 7 in COB 6.7.18 R) which can be invested only in units held within a non-stakeholder CTF (other than a contract contained in D) in an AUT , recognised scheme or ICVC purchased from a CTF provider, where advice is given.

Row 2

There is no right to cancel where any one or more of the following cases applies:

the customer is not a private customer (but see note 5 in COB 6.7.18 R);

the contract is entered into with the firm as an execution-only transaction (unless note 4 or note 5 in COB 6.7.18 R applies);

the contract is entered into through a direct offer financial promotion (unless note 4 or note 5 in COB 6.7.18 R applies);

the contract represents an exchange of units between sub-funds;

the contract represents a defined benefits pension scheme (but see note 5 in COB 6.7.18 R);

the contract is entered into under a customer agreement or during negotiations (which are not ISA , PEP or CTF related) intended to lead to a client agreement (unless note 4 or note 5 in COB 6.7.18 R applies);

the contract relates to an ISA or PEP for which the right to cancel is replaced by the right to withdraw (but see COB 6.7.14 R (1) and note 5 in COB 6.7.18 R);

the contract relates to an EIS or non-packaged product ISA, PEP or CTF and is entered into, following advice on investments, and following an explanation that neither of the rights specified in case 7 will apply, given to the customer in accordance with COB 3.9.21 R or COB 4 Ann 2E(9)(a) in a direct offer financial promotion , terms of business, or given in EIS particulars (but see note 5 in COB 6.7.18 R);

the contract entered into is a second or subsequent ISA (or EIS) on substantially the same terms (see note 3 in COB 6.7.18 R) as an ISA (or EIS) purchased from the same ISA manager (or EIS manager) in the previous tax year (but see note 5 in COB 6.7.18 R);

10.

the contract relates to a change from accumulation units to income units or vice versa, in the same scheme;

11.

pension contract funded (wholly or in part) from payments derived from compensation or redress paid by a firm following a review undertaken in relation to a complaint;

12.

pension contractor stakeholder pension scheme funded (wholly or in part) from payments derived from a pension transfer to the extent that the right to cancel is provided through a right to withdraw (see COB 6.7.14 R (2)) using the cancellation substitute in COB 6.7.19 R;

13.

the contract relates to a recognised scheme and the agreement is with an operator who is not:

(a)

an authorised person; or

(b)

carrying on business in the United Kingdom;

14.

the contract relates or would relate to exported products, that is to say:

(a)

where the customer is not habitually resident in the United Kingdom (or, for a distance contract , EEA) at the date of the offer of the contract; or

(b)

the firm has reasonable grounds for assuming that no advice on investments about the contract was provided by anyone carrying on designated investment business in the United Kingdom (but see note 5 in COB 6.7.18 R;

15.

for distance contracts:

(a)

the price depends on fluctuations in the financial market outside the firm's control which may occur during the cancellation period, such as contracts related to:

(i)

foreign exchange; or

(ii)

money market instruments; or

(iii)

transferable securities; or

(iv)

units in collective investment undertakings; or

(v)

financial-futures contracts, including equivalent cash-settled instruments; or

(vi)

forward interest-rate agreements; or

(vii)

interest-rate, currency and equity swaps; or

(viii)

options to acquire or dispose of any instruments in (i) to (vii), including cash-settled instruments and options on currency and on interest rates; or

(b)

the performance of the distance contract has been fully completed by both parties at the customer's express request before the customer exercises his right to cancel; or

(c)

the firm has an initial service agreement with the customer and the contract is in relation to a successive operation or separate operation of the same nature under that agreement (see COB 1.10.2 G).

09/10/2004

COB 6.7.18

Notes to cancellable contracts and exceptions - non-life

This table belongs to COB 6.7.17 R

Notes to COB 6.7.17R:

Recurring single payment pension contracts and unit savings plans. Under certain conditions, only the first payment in what might be a series of payments attracts cancellation rights under COB 6.7.7 (1) . The conditions are:

(a)

the intention or option to make a series of single payments is disclosed at outset (for example, in key features); and

(b)

the intention is evidenced (for example, by the customer establishing a direct debit mandate) .

Multiple contracts. Where a customer enters into a set of contracts at the same time (for example, regarding different components held within a maxi-ISA) and with the same firm, and that set is being purchased to fulfil one investment objective of the customer, the firm may treat the contracts as being one contract for the purposes of COB 6.7. But if it does so, the firm must ensure that the customer has a right to cancel each contract separately.

For example, mini- to mini-ISA or maxi- to maxi-ISA would be regarded in this context as 'on substantially the same terms'.

A customer has a right to cancel an appropriate personal pension or pension contract at the outset and on any subsequent agreement for a variation of a pension contract (see COB 6.7.23 regarding variation of an existing contract).

This exemption from giving a right to cancel does not apply for distance contracts .

In the case of contracts held within CTFs , the initial service agreement is cancellable in all cases.

Cancellation rights exist only where the registered contact has received advice. In cases in which cancellation rights apply, they are the same as the cancellation rights that would apply to the underlying units if they were not held within a CTF.

In relation to Revenue allocated accounts , the firm must not accept any additional contributions until the cancellation period has expired without the right to cancel being exercised.

09/10/2004

COB 6.7.19

Cancellation substitute

This table belongs to COB 6.7.14 R (2), cases 4(a) and 7(a) of row 2 to COB 6.7.15 R, case 12 of row 2 to COB 6.7.17 R, COB 6.7.23 (3) and COB 6.7.26A (2).

Cancellation substitute

The retail customer's right to cancel under COB 6.7.7 R (1) or COB 6.7.7 R (4) is provided through (see note 2) a right to withdraw only if:

the firm has supplied (or has reasonably relied upon another firm to supply) to the retail customer , at least 14 days before the contract is concluded, a written notice (see note 1) which prominently states:

(a)

that the retail customer has a specified period in which to consider his pension options;

(b)

the dates at which the period begins and ends (which must be, in the case of a pension transfer , before the transfer has been irrevocably effected);

(c)

the pension options available (for example, the open-market option in relation to a pension annuity);

(d)

the steps the retail customer must take in order to exercise a particular pension option;

(e)

that the retail customer is entitled to key features and is advised to check with the firm if the key features have not been received;

(f)

the cost of any advice given to the retail customer in relation to the transaction; and

the firm has taken sufficient steps (or has reasonably relied upon the same firm as in 1. to take those steps) to ensure that the customer has been informed and made fully aware of the potential advantages and disadvantages of proceeding and has had an opportunity to consider all other possible alternatives.

Notes:

1. The notice must be issued separately or feature prominently as part of another document supplied to the customer.

2. Where the retail customer's right to cancel is provided through a right to withdraw of less than 30 days, a further right to cancel of at least 30 days less the right to withdraw period must be provided in accordance with these rules so that the total period provided is at least 30 days.

09/10/2004

Voluntary provisions

COB 6.7.21

If anything in row 2 of either COB 6.7.15 R or COB 6.7.17 R removes the right to cancel a contract, but a firm voluntarily gives the retail customer a right to cancel in any event, the firm must treat the contract as if it were cancellable under COB 6.7.7 R (1).

09/10/2004

COB 6.7.22

(1) If the firm has any doubt whether a contract or the circumstances of its purchase bring the case within any part of COB 6.7.7 R (1), it should treat the contract as if it were cancellable.
(2) A firm that informs a retail customer that he has a right to cancel where it is not obliged to give a right to cancel will be taken to have voluntarily granted the retail customer a right to cancel (unless, for the purposes of COB 6.7.17 R, there is a relevant client agreement between the firm and the retail customer).

09/10/2004

Variations

COB 6.7.23

(1) After an increase in regular or single premiums or payments (including a pension transfer) to a life policy, pension contract or stakeholder pension scheme, a retail customer has a right to cancel (see COB 6.7.7 R (4)) in the following circumstances unless (2) applies:

(a) any variation, other than a 'pre-selected option' (see COB 6.7.26 G), providing for substantial increases in premium or payment where the increase:

(i) is being paid by way of varying the existing contract; or
(ii) will result in a new contract established on the same terms as the original contract;

and, in each case, represents an increase on the original premium or payments (or the previous highest agreed premium or payment) of more than 25% (see COB 6.7.25 G); or
(b) any variation, other than a 'pre-selected option' (see COB 6.7.26 G), that results in a new contract which involves fresh contract terms or imposes additional obligations on the retail customer due to a change in the terms of the original contract; or
(c) any variation where the increase represents the proceeds of a pension transfer; or
(d) the variation of a long-term care insurance contract to provide long-term care benefits.

(2) Paragraph (1) does not apply if:

(a) there would have been no right to cancel the original contract under COB 6.7.7 R (1) had that agreement been entered into on the date of the variation; or
(b) the variation arises out of the settlement of a claim for damages or compensation connected with a previous contract; or
(c) the variation is in respect of a life policy held within a CTF.

(3) A firm may use the cancellation substitute in COB 6.7.19 R in relation to a variation of a contract in any case where that substitute would have been available to it had the contract been entered into on the date of the variation.

09/10/2004

COB 6.7.23A

When under a long-term care insurance contract, a new contract is issued to provide for long-term care benefits, a policyholder who is an individual has a right to cancel unless COB 6.7.23 (2) applies.

31/10/2004

COB 6.7.24

For the avoidance of doubt, a right to cancel in relation to COB 6.7.23 R (1) applies to the variation and not the original contract.

01/12/2001

COB 6.7.25

In the case of COB 6.7.23 R (1)(a) and (b), there is no right to cancel where the variation results in an increase in premium or payment of 25% or less. For example, if the first premium paid by the customer (to the same policy) was £1,000, the second was £500, and the third was £900, the customer would have no right to cancel in relation to the third premium. Although £900 is more than 25% greater than £500, it is still below the original premium of £1,000. In this case, therefore, the right to cancel would only arise in circumstances where the premium was increased to over £1,250 (this being more than 25% of the original premium).

01/12/2001

COB 6.7.26

COB 6.7.23 R (1)(a) and (b) do not apply where the increase results from a pre-selected option. Increases of this type (for example, index-linked premiums or pension contributions that increase or decrease as salary fluctuates) will have been previously disclosed (for example, in the key features or terms and conditions) and agreed with the customer at the outset. Any subsequent increases of 25% or more resulting from a pre-selected option will not, therefore, attract fresh disclosure or cancellation rights.

01/12/2001

COB 6.7.26A

(1) If a customer who is an individual varies an existing pension scheme by exercising an option to make income withdrawals, he has a right to cancel that first variation.
(2) A firm may use the cancellation substitute in COB 6.7.19 in relation to the right to cancel in (1).

11/01/2004

Electronic communication relating to cancellation and withdrawal

COB 6.7.27

For electronic transactions (for example, facsimile, e-mail or Internet) firms are referred to the guidance in COB 1.8. The rules in COB 6.7 permit the firm to issue information about a right to cancel and other communications, and to accept notice from customers who are exercising the right to cancel or withdraw, by electronic means. However, a firm should be able to demonstrate that the customer wishes to communicate electronically.

09/10/2004

Reminding the customer of the right to cancel - contracts other than distance contracts and cash deposit ISAs

COB 6.7.30

Other than for distance contracts , cash deposit ISAs and CTFs that are not distance contracts, where there is a right to cancel, the firm which enters into the contract with the customer must send the customer, in writing, a clear and prominent reminder notice of this right:

(1) (for any contract specified in Part II of COB 6.7.57 to which shortfall applies), no later than the end of the eighth day; and
(2) (in any other case) no later than the end of the fourteenth day;

after the contract is concluded.

09/10/2004

COB 6.7.31

When the customer is a trustee who is reasonably believed by the firm to be expected to act on the instructions of the individual beneficiary or purchaser of the policy or contract, the firm must send the notice of the right to cancel in COB 6.7.30 R to:

(1) the trustee; and
(2) the beneficiary or purchaser;

and must inform the beneficiary or purchaser of the need to give instructions, within the specified cancellation period, to the trustee where the right to cancel is to be exercised.

09/10/2004

Failure to give information on cancellation rights

COB 6.7.41

If a firm does not give a retail customer information about his cancellation rights in accordance with COB App 1.1.1 R (17), the contract remains cancellable and the retail customer will not be liable for any shortfall (see COB 6.7.56 R (1)).

09/10/2004

Exercising the right to cancel

COB 6.7.42

A retail customer who has a right to cancel under COB 6.7.7 R may, without giving any reason, cancel the contract by serving notice upon the firm, before expiry of the relevant cancellation period either:

(1) by post to the firm's last known address; or
(2) in accordance with any other practical instructions for exercising that right provided to the customer in accordance with COB App 1.1.1 R (17)(b).

09/10/2004

COB 6.7.44

Where the notice of cancellation is in a durable medium and served in accordance with COB 6.7.42, it must be treated as being served on the firm on the date it is despatched by the retail customer.

01/12/2001

COB 6.7.45

The purpose of COB 6.7.44 R is to identify the relevant day for determining whether the right to cancel was exercised within the relevant period in COB 6.7.10 R.

01/12/2001

COB 6.7.46

In the event of any dispute, unless there is clear written evidence to the contrary, the firm should treat the date cited by the customer as being the date when the notice was given, posted or otherwise sent.

01/12/2001

Record keeping

COB 6.7.47

Where notice of cancellation or withdrawal has been served on a firm (or its appointed representative or agent), the firm must make and retain records (which include a copy of any receipt of notice issued to the customer and the customer's original notice instructions):

(1) indefinitely in the case of a record relevant to a pension transfer, pension opt-out or FSAVC;
(2) for a minimum period of:

(a) six years in the case of a record relevant to a life policy, pension contract or stakeholder pension scheme; and
(b) three years in any other case;

and, in each case, the minimum time period runs from the date when the firm first became aware that notice of cancellation had been served.

01/12/2001

Cancellation notices served out of time

COB 6.7.48

If a firm has provided information on cancellation rights in accordance with COB App 1.1.1 R (17), it need not (unless COB 6.7.11 R applies) accept a notice of cancellation if it is served later than the period specified for that contract in COB 6.7.10 R.

01/12/2001

Death of the life assured: cancellation of a pension annuity

COB 6.7.49

A firm need not accept notice of cancellation of a pension annuity contract if the life (or any of the lives) assured under it has died before notice is given.

01/12/2001

Joint policyholders: effecting cancellation of a life policy

COB 6.7.50

In the case of a life policy, cancellation by one of several policyholders is valid if that policyholder has the right to cancel, irrespective of whether the policyholder is exercising that right alone or jointly on behalf of all of the policyholders.

01/12/2001

Effects of cancellation

COB 6.7.51

By exercising a right to cancel under COB 6.7.7 R (1), (2) or (4), the customer withdraws from the contract and:

(1) the entire contract; or
(2) the particular ISA component; or
(3) the variation alone (see COB 6.7.23 R (1));

is terminated.

01/12/2001

Automatic cancellation of an attached distance contract

COB 6.7.51A

Regulation 12 (Automatic cancellation of an attached distance contract) of the Distance Marketing Regulations, has the effect that when notice of cancellation is given in relation to a contract, that notice also operates to cancel any attached distance financial services contract which does not fall within one of the exceptions to the right to cancel in regulation 11, unless the retail customer gives notice that cancellation of the main contract is not to operate to cancel the attached contract. So, for example, the attached contract will not be cancelled if the price of the service depends on fluctuations in the financial market outside the firm's control or if performance of the contract has been fully completed by both parties at the consumer's express request.

09/10/2004

Obligations on cancellation

COB 6.7.52

Unless the agreement relates to a CTF, when a retail customer exercises a right to cancel under COB 6.7.7 R (1), (2), (3) or (4):

(1) the firm must:

(a) pay to the retail customer (or, in the case of a pension transfer or pension annuity , for the benefit of the retail customer) without delay, and no later than 30 days after the date on which the firm received notice of cancellation from the retail customer, any sums which the customer has paid to or for the benefit of the firm in connection with the contract (including sums paid by the retail customer to agents of the firm) except for the amount referred to in (b);
(b) subject to (c), the firm is permitted to require the retail customer to pay for the services it has actually provided in connection with the contract; the amount payable, however, must be in accordance with the sums which the retail customer agreed to pay and must not:

(i) exceed an amount which is in proportion to the extent of the service already provided to the retail customer by the firm; and
(ii) be such that it could be construed as a penalty;

(i) the contract is a distance contract within COB 6.7.17 R, Row 1, case D (Distance contracts for certain designated investment business or accepting deposits);
(ii) where performance of the contract has commenced before expiry of the cancellation period, this was requested by the retail customer; and
(iii) the firm can demonstrate that the retail customer was provided with details of the amount which he may be required to pay if exercising his right to cancel in accordance with COB App 1.1.1 R (17)(a).

(2) The firm is entitled to receive without delay, and no later than 30 days after the date on which the customer posted or otherwise sent notice of cancellation to the firm:

(a) any sums or property or both that became the customer's under the contract; and
(b) payment of any shortfall due under COB 6.7.54 R.

01/12/2001

COB 6.7.52A

(1) When a person exercises a right to cancel a contract in connection with a CTF that has been opened, the CTF provider must ensure that:

(a) where the CTF provider and the firm that provides the underlying investment are different persons , any money that was held by the firm that provides the underlying investment in connection with the CTF is returned to the CTF provider as soon as reasonably practicable;
(b) any sums which any person has paid to or for the benefit of any firm in connection with the CTF continue to be held in a CTF bank account until the CTF provider receives further instructions regarding the investment of those sums in accordance with the CTF Regulations
(c) where a CTF provider holds sums in accordance with COB 6.7.52A, the CTF provider notifies the private customer in writing as soon as reasonably practicable, stating that the money is held awaiting re-investment instructions; and
(d) if the CTF bank account is non-interest bearing, the registered contact is informed of that fact as soon as possible after the money has been deposited in the account.

(2) When a person exercises the right to cancel a contract in connection with a CTF that has not been opened and the CTF provider holds money awaiting instructions, the CTF provider must comply with the requirements of COB 6.7.52A(1)(b), (c), and (d).

01/12/2001

COB 6.7.52B

Where cancellation rights are exercisable by a customer in relation to a CTF , the CTF provider will need permission to hold client money to be able to deal with the money from the cancelled contract unless they can take advantage from any exemption from the client money rules.

01/12/2001

COB 6.7.53

Any sum payable under COB 6.7.52 R is owed as a simple contract debt, and any sums payable in respect of the same cancellation may where relevant be set off against each other.

01/12/2001

Shortfall

COB 6.7.54

Subject to COB 6.7.56 R, the firm is entitled under COB 6.7.52 (3) to charge the retail customer for the market loss (that is, shortfall), calculated in accordance with COB 6.7.58 R, which the firm would incur in cancelling any contract specified in COB 6.7.57 R.

01/12/2001

Shortfall: worked example

COB 6.7.55

COB 6.7.58 R illustrates the process that firms need to undertake in order to discover the amount (that is, shortfall) by which the purchase price paid by the retail customer is greater than the purchase price prevailing when the firm becomes aware that the retail customer has cancelled. EXAMPLE: In the case of dual-priced investments , the shortfall on cancellation is calculated on an offer-to-offer basis; for example, 1,000 units are purchased at an offer price of 209.1p and the offer price is (or, in the case of a forward price , is subsequently ascertained to be) 196.2p as at the time when the firm became aware that notice of cancellation had been served by the retail customer. The shortfall on cancellation, therefore, is (209.1 - 196.2) = (12.9p x 1,000) = £129.

01/12/2001

Exceptions to shortfall

COB 6.7.56

A firm will have no right to charge a retail customer for any shortfall which results from the customer having exercised a right to cancel in any of the following circumstances:

(1) if the firm does not give the customer notice of his cancellation rights as required by COB 6.7 (17);
(2) if the firm fails to make any prominent mention of shortfall in the information about cancellation;
(3) if the firm has failed to send a reminder notice as required by COB 6.7.30 R (2);
(4) if the customer has served the cancellation notice before the contract is concluded.

01/12/2001

COB 6.7.57

Table: Contracts which are subject to shortfall.

This table belongs to COB 6.7.54 R

Investment agreements which are subject to shortfall

Part I: any contract specified in row 1 of COB 6.7.15 R (unless note 1 applies):

which is:

where the investment agreement is effected as a:

(1) a life policy
(2) a pension policy

(a) single premium life policy; or
(b) single premium pension policy; or
(c) single premium addition to an existing single or regular premium life policy or pension policy.

Part II: any contract specified in row 1 of COB 6.7.17 R (unless note 2 applies):

which is:

where the investment agreement is effected as:

(1) a pension contract
(2) a subscription to invest in an AUT
(3) a subscription to invest in an ICVC

(a) a single payment arrangement; or
(b) a single payment addition to an existing single or regular payment pension contract or unit savings plan.

Part III: a single contribution to a stakeholder pension scheme except where the contribution is a recurring contribution or the stakeholder pension scheme has been established at the outset on the basis of regular contributions.

Notes:
Shortfall does not apply to any contract which is established at the outset:

1. on a regular premium basis, or as a recurring single premium life policy or pension policy;

2. on a regular payment basis, or as a recurring single payment pension contract or unit savings plan.

01/12/2001

COB 6.7.58

Table: Calculation of shortfall.

This table belongs to COB 6.7.54 R

Calculation of shortfall

A firm must calculate shortfall as at the 'relevant date' (see note 1) as follows:

take the actual payment made, whether only or first payment (see note 2);

take the equivalent payment that would have been quoted (see notes 3, 4 and 5) to the same retail customer assuming an identical purchase was made at the 'relevant date';

add to the figure at B the amount of any income included in the figure at A (but originally excluded from the figure at B for the purposes of distribution to retail customers); and

deduct the figure at B (as amended by C) from the figure at A; if the resultant figure is zero or negative, there is no shortfall.

Notes: 1. The 'relevant date' is the date when the firm first became aware that notice of cancellation had been served upon it.

2. If the agreement is a variation of a previous contract (see COB 6.7.23 ), the firm must treat the increase in premium as the sum in A.

3. If details of the payments necessary to calculate B (for example, premium rates, investment prices or yields etc) are not publicly available (see note 6) at the 'relevant date', there is no shortfall.

4. If the agreement relates to a life policy or pension annuity on the life of another, the firm must treat the first life assured as the customer for the comparison in B.

5. Where the change is yield and not premium or price, in order to calculate B the firm must convert the change in yield (if an enhancement) into a change in premium or price.

6. In the case of a forward price, the requirement of public availability is satisfied if both the previous and next relevant prices are published in a national UK newspaper).

01/12/2001

COB 6.8

Insurance contracts: life and general

01/12/2004

Application

COB 6.8.1

COB 6.8 applies to a firm which effects or carries out pure protection contracts, life policies or general insurance contracts.

18/10/2001

Purpose

COB 6.8.2

(1) Principle 7 (Communications with clients) requires a firm to pay due regard to the information needs of its clients. This section reinforces Principle 7 by requiring certain information to be provided to a client before a pure protection contract or general insurance contract is entered into. Certain information must also be provided on a continuing basis to a client with a pure protection contract or life policy. (COB 6.1 to COB 6.5 deal with pre-sale information for life policies).
(2) This section implements certain requirements of the Fourth Motor Insurance and the Third Life and Non-Life Directives.
(3) For general insurance contracts, firms may find it helpful to take account of the requirements issued by the General Insurance Standards Council ("GISC"). The provisions in this section relating to general insurance contracts are broadly in line with those requirements.

19/01/2003

Pure protection contracts: Information to be provided before the contract is made

COB 6.8.3

A firm must ensure that, before entering into a pure protection contract with a client, it provides the client with the information specified in COB 6.5.49 R, unless, at the time of application, the client , other than an EEA ECA recipient, is habitually resident:

(1) (except for a distance contract with a retail customer) in an EEA State other than the United Kingdom; or
(2) outside the EEA and he is not present in the United Kingdom.

01/03/2003

COB 6.8.4

The information required by COB 6.8.3 R must be:

(1) provided to the customer either by the firm itself or by an intermediary authorised by the firm to act on its behalf; and
(2) in English, unless the customer requests it to be, and the firm agrees to it being, in another language.

01/12/2001

Pure protection contracts and life policies: Information to be provided during the term of the contract

COB 6.8.6

COB 6.8.7 R and COB 6.8.8 R apply to a long-term insurer, unless, at the time of application, the client, other than an EEA ECA recipient, was habitually resident:

(1) in an EEA State other than the United Kingdom; or
(2) outside the EEA and he was not present in the United Kingdom.

01/03/2003

COB 6.8.7

If during the term of a pure protection contract or life policy entered into on or after 1 July 1994 there is any proposed change in the information referred to in COB 6.5.49 R items (1) to (12), the long-term insurer must inform the policyholder of the effect of the change before the change is made.

01/03/2003

COB 6.8.8

If a pure protection contract or life policy entered into on or after 1 July 1994 provides for the payment of bonuses and the amounts of bonuses are unspecified, the long-term insurer must, in every calendar year except the first, either:

(1) notify the policyholder in writing of the amount of any bonus which has become payable under the contract, and which has not previously been notified under this rule; or
(2) give the policyholder in writing sufficient information to enable him to determine the amount of any such bonus.

01/09/2002

COB 6.8.9

The information under COB 6.8.8 R (2) could include the total value of the benefits (including bonuses) which have accrued under the contract, the rates of bonus which have been declared since the previous notification or provision of information and a note of the benefits to which those new rates should be applied.

01/12/2001

COB 6.8.10

Although COB 6.8.8 R does not apply to a bonus if the amount is specified in the contract, long-term insurers are free to provide the information if they wish.

01/12/2001

General insurance contracts: Information required to be provided before the contract is made

COB 6.8.11

COB 6.8.12 R and COB 6.8.13 R cover information to be provided before the sale of a general insurance contract. They contain no requirements for information during the term of the contract.

01/12/2001

COB 6.8.12

Before entering into a general insurance contract with an individual when the United Kingdom is the State of the risk or the individual is an EEA ECA recipient, a firm must, subject to COB 6.8.13 R provide the individual with:

(1) details of its complaints procedure including, where appropriate, the existence of a complaints body, making it clear that its existence is without prejudice to the policyholder's right to take legal proceedings; and
(2) a statement whether the firm or policyholder is entitled to choose the law applicable to the contract and, if so, the law which the firm proposes to choose.

09/10/2004

COB 6.8.13

COB 6.8.12 R does not apply if the contract has been submitted to the firm on behalf of a customer by an intermediary and:

(1) the intermediary is a member of the General Insurance Standards Council; or
(2) the firm has taken reasonable steps to determine that the intermediary has provided the information required by COB 6.8.12 R.

01/12/2001

COB 6.8.14

Situations for information delivery will differ depending on the channels used. For example, leaflets will be sufficient at point of sale. For telephone sales the information may be given orally but then must be followed up in writing within five business days (see COB 6.8.15 R (2)).

01/12/2001

Provision of information: general

COB 6.8.15

(1) When a firm provides information in accordance with COB 6.8.3 R, COB 6.8.7 R, COB 6.8.8 R or COB 6.8.12 R, it must provide the information in writing, unless (2) applies.
(2) If the contract is being made by telephone, the firm may give the information orally to the customer. If the customer enters into the contract, a written version of the required information must be sent to the customer within five business days of the contract being entered into.

01/12/2001

COB 6.8.16

In relation to electronic notification, firms are referred to the guidance in COB 1.8 (Application to electronic media).

01/12/2001

COB 6.8.17

Where a pure protection contract, life policy or general insurance contract is effected jointly, the information required by COB 6.8.3 R, COB 6.8.7 R, COB 6.8.8 R, or COB 6.8.12 R may be sent to the first named customer.

18/10/2001

Record keeping

COB 6.8.18

A firm must make an adequate record of information provided to a customer under COB 6.8 and retain that record for a minimum period after the information is provided of:

(1) six years in the case of a pure protection contract or life policy; or
(2) three years in the case of a general insurance contract.

18/10/2001

Motor Vehicle Liability Insurers: claims representatives

COB 6.8.19

(1) Under threshold condition 2A (Appointment of claims representatives), if it appears to the FSA that any person is seeking to carry on, or carrying on, motor vehicle liability insurance business, that person must have a claims representative in each EEA State other than the United Kingdom.
(2) If any person carrying on motor vehicle liability insurance business becomes aware, or has information which reasonably suggests, that that person has failed to satisfy, may have failed to satisfy or may not in the foreseeable future be able to satisfy, threshold condition 2A (or any threshold condition), that person must notify the FSA immediately (see SUP 15.3.1 R).

19/01/2003

COB 6.8.20

The Society must ensure that no member carries on motor vehicle liability insurance business at Lloyd's unless a claims representative has been appointed to act for that member in each EEA State other than the United Kingdom, with responsibility for handling and settling claims arising from an accident in the cases referred to in article 1 of the Fourth Motor Insurance Directive.

19/01/2003

COB 6.8.21

(1) When a motor vehicle liability insurer appoints a claims representative, it must give the MIIC and each other information centre the claims representative's name, business address, telephone number and effective date of appointment within ten business days of that appointment being made.
(2) If the information at (1) changes in any material way, the motor vehicle liability insurer must give the MIIC and each other information centre details of that change within ten business days of that change.

19/01/2003

COB 6.8.22

A motor vehicle liability insurer must ensure that each claims representative is:

(1) resident or established in the EEA State for which it is appointed;
(2) capable of examining cases in the official language or languages of the EEA State of residence of the injured party;
(3) responsible for, and has sufficient delegated authority from the motor vehicle liability insurer for which it is appointed, to be able to:

(a) handle and settle;
(b) collect all information, and take all measures, reasonably necessary to negotiate a settlement of; and
(c) represent, or arrange appropriate representation for, the motor vehicle liability insurer (whether in negotiations, in court or otherwise) in relation to;

claims, arising from an accident occurring in an EEA State other than the EEA State of residence of the injured party, involving the use of a vehicle insured and normally based in an EEA State.

19/01/2003

COB 6.8.23

COB 6.8.22 R (3) does not prevent a claims representative from seeking additional authority or instructions from a motor vehicle liability insurer, if its existing authority or instructions are insufficient to allow it to handle and settle a claim. However, it does prevent a claims representative from purporting to decline to deal with, or transfer responsibility for, claims properly referred to that claims representative by an injured party, or an injured party's representative.

19/01/2003

COB 6.8.24

Nothing in the rules and guidance at COB 6.8.19 G to COB 6.8.29 G prevents, or is intended to prevent:

(1) a motor vehicle liability insurer from appointing more than one claims representative in one, or more than one, EEA State; or
(2) a claims representative from acting for more than one insurer or member; or
(3) a representative, appointed by a motor vehicle liability insurer under SUP 13.5.2 R or regulation 3(d) of the EEA Passport Rights Regulations, from acting as that motor vehicle liability insurer's claims representative as well.

19/01/2003

COB 6.8.25

The appointment of a claims representative does not in itself constitute the opening of a branch or the creation of an establishment (see article 4(8) of the Fourth Motor Insurance Directive).

19/01/2003

Motor Vehicle Liability Insurers: claims handling

COB 6.8.26

(1) Within three months of receipt of a claim for damages from an injured party, or his representative, the motor vehicle liability insurer must (directly, or through a claims representative):

(a) make a reasoned offer of settlement, if liability is admitted and damages have been fully quantified; or
(b) provide a reasoned reply to the points made in the injured party's claim, if liability is denied, or not admitted, or the claim for damages has not been fully quantified.

(2) If liability is initially denied, or not admitted: within three months of any subsequent admission of liability, the motor vehicle liability insurer must (directly, or through a claims representative) make a reasoned offer of settlement, if, by that time, the relevant claim for damages has been fully quantified.
(3) If an injured party's claim for damages is not fully quantified when it is first made: within three months of the subsequent receipt of a fully quantified claim for damages, the motor vehicle liability insurer must (directly, or through a claims representative) make a reasoned offer of damages, if liability is admitted at that time.
(4) A claim for damages will be fully quantified under (1)(a), (2) or (3) when the injured party provides written evidence which substantiates or supports the amounts claimed.

19/01/2003

COB 6.8.27

(1) If the motor vehicle liability insurer, or its claims representative, does not comply with COB 6.8.26 R(1)(a), (2) or (3), the motor vehicle liability insurer must pay simple interest on any damages eventually paid, unless interest is awarded by any tribunal which determines the injured party's claim.
(2) If (1) applies, the amount of interest that the motor vehicle liability insurer must pay must be calculated as follows:

(a) the interest calculation period:

(i) begins three months after:(A) receipt of the claim for damages, if the motor vehicle liability insurer or its claims representative breaches COB 6.8.26 R (1)(a) ; or(B) any subsequent admission of liability, if the motor vehicle liability insurer or its claims representative complies with COB 6.8.26 R (1)(a) but breaches COB 6.8.26 R (2); or(C) the subsequent receipt of a fully quantified claim for damages, if the motor vehicle liability insurer or its claims representative complies with COB 6.8.26 R (1)(a) and (2) but breaches COB 6.8.26 R (3); and
(ii) ends on the date when the motor vehicle liability insurer pays compensation to the injured party, or the injured party's authorised representative;

(b) the interest rate to be applied throughout the period in (a) is the Bank of England's base rate (from time to time), plus four per cent.

19/01/2003

COB 6.8.28

A motor vehicle liability insurer will be taken to have received a claim, or a fully quantified claim, for damages when that claim, or fully quantified claim, for damages is delivered to the motor vehicle liability insurer, or a claims representative, by any person by any method of delivery which is lawful in the motor vehicle liability insurer's, or its claims representative's, respective State of residence or establishment.

19/01/2003

COB 6.8.29

(1) COB 6.8.26 R to COB 6.8.28 R apply only to claims for damages for loss or injury suffered in, or as a result of, an accident which occurs in an EEA State other than an injured party's usual state of residence, which is caused by the use of a motor vehicle insured and normally based in an EEA State.
(2) COB 6.8.19 G to COB 6.8.28 R are not intended to, and do not, restrict any rights which the injured party, or its motor vehicle liability insurer, or any other insurer acting on its behalf, may have and which would enable any of them to begin legal proceedings against the person causing the accident or that person's, or the motor vehicle's, insurers.

19/01/2003

COB 6.9

With-profits guides

01/12/2004

Application

COB 6.9.1

This section applies to a long-term insurer which issues with-profits life policies and which is:

(1) a long-term insurer other than a friendly society; or
(2) a directive friendly society that is carrying on long-term insurance business other than just in relation to industrial assurance policies; or
(3) a friendly society which issues Holloway sickness policies if details of the funds' expenses and asset distribution are not published elsewhere at least annually.

01/12/2001

Purpose

COB 6.9.2

This section is relevant to a firm's obligations under Principle 7 (Communications with clients) which requires a firm to pay due regard to the information needs of its customers, and communicate with them in a way which is clear, fair and not misleading. In the case of with-profits life policies, it is desirable for customers and their advisers to have additional information available to them in order to enable them to understand how the long-term insurer is likely to take decisions concerning the distribution of profits and the declaration of bonuses.

01/12/2001

With-profits guides

COB 6.9.3

A firm must produce a with-profits guide in accordance with COB 6.9.4 R and make it available in accordance with COB 6.9.5 R.

01/12/2001

COB 6.9.4

A firm must:

(1) not later than six months after its financial year end or, if later, two months after the end of the lodgement period for annual regulatory returns, produce a separate and self-contained guide for each with-profits fund that it maintains, unless the fund is closed to new policyholders;
(2) issue a revised guide or a supplement to the guide as soon as reasonably practicable after a change in the circumstances of or affecting the with-profits fund which would cause the guide to become misleading or incomplete;
(3) ensure that each guide is consistent with the information contained in the annual prudential regulatory returns; and
(4) ensure that each guide contains the information specified in COB 6.9.6 R.

01/12/2001

COB 6.9.5

(1) If asked to supply a copy of a with-profits guide for a fund that it maintains, a firm must do so free of charge.
(2) The guide supplied in accordance with (1) must be the latest version unless a specific earlier version is requested.

01/12/2001

Content of with-profits guides

COB 6.9.6

A with-profits guide must contain the headings, tables and information prescribed in COB 6.9.7 R and:

(1) the lettered sections and the tables in those sections must appear in the order set out in COB 6.9.7 R but the information required within each lettered section may be provided in a different order;
(2) the text prescribed by COB 6.9.7 R must be used, but:

(a) any text in brackets must be replaced by appropriate text applicable to the firm and with-profits fund to which the guide relates; and
(b) the text must be modified if the firm considers it inappropriate to the fund or the aspects of it being explained;

(3) a firm may omit or alter the lettering and numbering of the headings, sections and paragraphs;
(4) the guidance notes must not be included; and
(5) in preparing information for inclusion in the with-profits guide, a firm must have regard to any relevant guidance published by the Institute of Actuaries or the Faculty of Actuaries (or both jointly).

01/12/2001

COB 6.9.7

Contents of a with-profits guide

This table belongs to COB 6.9.6 R.

[Name of fund] with-profits guide [date of issue]

Introduction

All insurance companies, and the larger friendly societies, which market with-profits policies in the United Kingdom, are required to make available a guide containing information about the company or society and its with-profits fund. This is because the benefits under such policies depend in part, and sometimes to a considerable extent, on bonus additions which are made by the company or the society from time to time and which cannot be known in advance. It is therefore important that potential policyholders and their advisers should have access to information about the most important factors influencing such bonuses.

However, investors are advised that, in comparing a policy marketed by one company or society with other policies, it is unwise to place too much importance on any one factor. An over-all view of all relevant elements will usually give a more realistic comparison: in particular, an examination of the history of a fund over a period of years will usually give a fuller picture than can be obtained from looking at the figures for just one year.

[The company/society] is satisfied that this guide fairly presents information as at [date] about the company/society ¹ and complies with the rules of the Financial Services Authority.

[If the firm is producing an appendix to the guide referring to an industrial assurance with-profits fund, the firm may include an explanation of the difference between ordinary and industrial assurance business]

Note: 1 - Delete whichever is inapplicable

Principles and Practices of Financial Management (PPFM)

01/12/2004

Application and purpose Application

COB 6.10.1

(1) The whole of this section, except COB 6.10.4A G and COB 6.10.21A R to COB 6.10.21J G, applies to a firm that:

(a) carries on with-profits business;
(b) is not an EEA insurer; and
(c) is not a non-directive friendly society.

(2) COB 6.10.4A G and COB 6.10.21A R to COB 6.10.21J G apply only to an EEA insurer that carries on with-profits business.
(3) This section does not apply to with-profits business that consists of effecting or carrying out Holloway sickness policies.

30/04/2004

Purpose

COB 6.10.2

Principle 6 (Customers' interests) requires a firm to pay due regard to the interests of its customers and treat them fairly.

30/04/2004

COB 6.10.3

The rules and guidance in this section are intended to secure an appropriate degree of protection for policyholders, and potential policyholders, of firms carrying on with-profits business by requiring them to define and make available their Principles and Practices of Financial Management. These rules and guidance are also intended to enable policyholders and potential policyholders, of firms carrying on with-profits business better to understand the way in which firms carry on their with-profits business.

30/04/2004

COB 6.10.4

A firm's Principles and Practices of Financial Management also play an important role in promoting confidence among with-profits policyholders and in the governance arrangements for with-profits business set out in COB 6.11 (Reporting to with-profits policyholders on compliance with PPFM).

30/04/2004

COB 6.10.4A

The effect of COB 6.10.21A R, COB 6.10.21B R and COB 6.10.21C G is that an EEA insurer that carries on with-profits business must provide its UK with-profits policyholders with information equivalent in scope and content to the information that a UK insurer must provide in the form of Principles and Practices of Financial Management.

30/04/2004

Principles and Practices of Financial Management

COB 6.10.5

(1) A firm must establish and maintain the Principles and Practices of Financial Management according to which the business of its with-profits funds is conducted.
(2) A firm must make a record of its Principles and Practices of Financial Management in (1), and retain that record for six years from the date on which it was superseded by a more up-to-date record.

30/04/2004

COB 6.10.6

Whether a separate PPFM is needed for each with-profits fund is a matter for the firm in the light of its circumstances, including previous management of those funds and any relevant representations made by the firm to with-profits policyholders.

30/04/2004

COB 6.10.7

In order to comply with COB 6.10.5 R a firm should:

(1) establish and maintain a document approved by its governing body, setting out its PPFM; and
(2) keep a record of each version of the PPFM as it changes over time.

30/04/2004

Obligation to provide copies

COB 6.10.8

A firm must provide a copy of its PPFM, or the PPFM applicable to specified with-profits funds:

(1) free of charge at the request of any with-profits policyholder of the firm; and
(2) at the request of any person who is not a with-profits policyholder of the firm if that person pays any reasonable charge the firm may make for providing that copy.

30/04/2004

COB 6.10.9

A firm should indicate in any annual statements sent to with-profits policyholders that copies of the firm's PPFM, or the PPFM applicable to specified with-profits funds, are available on request, under COB 6.10.8 R. The PPFM might also be published on a firm's website.

30/04/2004

Principles of Financial Management

COB 6.10.10

The with-profits principles within the PPFM must:

(1) be enduring statements of the overarching standards the firm adopts in managing with-profits funds; and
(2) describe the business model used by the firm in meeting its duties to with-profits policyholders and in responding to longer-term changes in the business and economic environment.

30/04/2004

COB 6.10.11

The with-profits principles are not expected to change often. However, they should be informative enough to enable the directors, any actuary appointed under SUP 4 (Actuaries) and any With-profits Committee, amongst others, to judge whether existing or potential with-profits practices are appropriate for the firm.

30/04/2004

COB 6.10.12

A firm must send its with-profits policyholders written notice, setting out any proposed changes to the with-profits principles of the firm, three months in advance of the effective date of the proposed changes.

30/04/2004

COB 6.10.13

If a firm maintains more than one PPFM, the notice in COB 6.10.12 R need only be sent to those policyholders affected by the PPFM being changed.

30/04/2004

COB 6.10.14

A firm may give the notice required under COB 6.10.12 R by including the required information in any annual statements sent to with-profits policyholders if this is at least three months in advance of the effective date of the proposed changes.

30/04/2004

COB 6.10.15

Changes to the with-profits principles of a firm are likely to trigger one or more of the firm's obligations to notify the FSA under SUP 15.3 (General notification requirements).

30/04/2004

Practices of Financial Management

COB 6.10.16

The with-profits practices within the PPFM must:

(1) describe the firm's approach to managing with-profits funds and to responding to changes in the business and economic environment in the shorter-term; and
(2) contain sufficient detail to enable a knowledgeable observer to understand the material risks and rewards from effecting or maintaining a with-profits policy with the firm.

30/04/2004

COB 6.10.17

Subject to the with-profits principles, a firm's with-profits practices are expected to change as the firm's circumstances and the business environment change, with some alteration, for example, every few years.

30/04/2004

COB 6.10.18

A firm must send its with-profits policyholders written notice, setting out any changes to the with-profits practices of the firm.

30/04/2004

COB 6.10.19

If a firm maintains more than one PPFM, the notice in COB 6.10.18 R need only be sent to those policyholders affected by the PPFM being changed.

30/04/2004

COB 6.10.20

A firm may give the notice required under COB 6.10.18 R by including the required information in any annual statements sent to with-profits policyholders. The notice can be in arrears but should be within a reasonable time period from the effective date of the change.

30/04/2004

COB 6.10.21

Changes to the with-profits practices of a firm may trigger one or more of the firm's obligations to notify the FSA under SUP 15.3 (General notification requirements).

30/04/2004

COB 6.10.21A

An EEA insurer must, on the request of any with-profits policyholder who is habitually resident in the United Kingdom, provide the information necessary to enable that policyholder properly to understand the essential elements of the insurer's commitment under the policy.

30/04/2004

COB 6.10.21B

The information provided under COB 6.10.21A R must not be narrower in scope or less detailed in content than the equivalent PPFM under COB 6.10.22 R to COB 6.10.62.

30/04/2004

COB 6.10.21C

An EEA insurer should indicate in any annual statements sent to with-profits policyholders that the information provided under COB 6.10.21A R is available on request. The PPFM might also be published on an EEA insurer's website.

30/04/2004

COB 6.10.21D

An EEA insurer must send its with-profits policyholders who are habitually resident in the United Kingdom, written notice, setting out any proposed changes to that part of the information provided under COB 6.10.21A R that is equivalent in substance to the with-profits principles of a firm to which COB 6.10.1 R(1) applies.

30/04/2004

COB 6.10.21E

An EEA insurer must send the notice provided under COB 6.10.21D R three months in advance of the effective date of the proposed changes.

30/04/2004

COB 6.10.21F

An EEA insurer may send the notice provided under COB 6.10.21D R only to those policyholders affected by the information being changed.

30/04/2004

COB 6.10.21G

An EEA insurer may give the notice provided under COB 6.10.21D R by including the required information in any annual statements sent to with-profits policyholders if this is at least three months in advance of the effective date of the proposed changes.

30/04/2004

COB 6.10.21H

An EEA insurer must send its with-profits policyholders who are habitually resident in the United Kingdom, written notice, setting out any changes to that part of the information provided under COB 6.10.21A R that is equivalent in substance to the with-profits practices of a firm to which COB 6.10.1 R(1) applies.

30/04/2004

COB 6.10.21I

An EEA insurer may send the notice provided under COB 6.10.21H R only to those policyholders affected by the information being changed.

30/04/2004

COB 6.10.21J

An EEA insurer may give the notice provided under COB 6.10.21H R by including the required information in any annual statements sent to with-profits policyholders. The notice can be arrears but should be within a reasonable time period from the effective date of the change.

30/04/2004

Scope and content of the Principles and Practices of Financial Management

COB 6.10.22

(1) The PPFM of a firm must cover any issues that has, or it is reasonably foreseeable may have, a significant impact on the firm's management of with-profits funds.
(2) The issues in (1) include: the amount payable under a with-profits policy, the investment strategy, business risk, charges and expenses, management of the inherited estate, volumes of new business and arrangements on stopping new business and arrangements on stopping taking new business, and equity between the with-profits fund and any shareholders.

30/04/2004

COB 6.10.23

In addition to the issues in COB 6.10.22 R(2), a firm's PPFM should also cover any other areas that are important to the management of its with-profits funds and that may affect the amounts payable under with-profits policies.

30/04/2004

COB 6.10.24

A firm's PPFM should reflect any requirements or constraints relevant to the management of with-profits funds that apply to the firm as a result of previous dealings: for example, previous business transfer schemes. The PPFM should also set out the extent to which the firm's freedom to alter its PPFM is constrained, including by such previous dealings.

30/04/2004

COB 6.10.25

The rest of this section includes rules on each of the issues that a firm's PPFM must cover, followed in each case by guidance on how various information relevant to that issue might be split between with-profits principles and with-profit practices.

30/04/2004

The amount payable under a with-profits policy

COB 6.10.26

The PPFM of a firm must cover the methods that the firm uses to guide its determination of the amount that it is appropriate to pay individual with-profits policyholders, including:

(1) the aims of the methods used, and the approximations used;
(2) how the current methods, including any relevant historical assumptions used and any systems maintained to deliver results of particular methods, are documented within the firm; and
(3) the procedures for changing either the current method or any assumptions or parameters relevant to a particular method.

30/04/2004

COB 6.10.27

A firm may use a number of methods to determine the amount payable to a with-profits policyholder and may use more than one method to determine the amount payable to a particular with-profits policyholder.

30/04/2004

COB 6.10.28

The firm's with-profits principles should describe:

(1) the aims of the methods the firm uses to determine the amount payable to with-profits policyholders;
(2) the degree of approximation that the firm is prepared to allow in the application of those methods and in the application of its with-profits principles;
(3) how the firm controls changes to those methods; and
(4) the circumstances under which the firm might change any historical assumptions or parameters relevant to those methods: for example, previously applied investment returns, charges, or allocations of miscellaneous surplus, that have been derived from the historical experience and actions of the firm.

30/04/2004

COB 6.10.29

The firm's with-profits practices should describe, for each major class of with-profits policy:

(1) the methods that the firm currently uses to determine the amount payable to with-profits policyholders;
(2) the methods that the firm currently uses to determine the main assumptions or parameters that determine the output of those methods;
(3) the degree of approximation that the firm allows when it applies assumptions or parameters across generations of with-profits policyholders or across different types or classes of with-profits policies;
(4) the formality with which the firm documents the methods, parameters or assumptions that it uses to determine the amount payable to with-profits policyholders; and
(5) the firm's internal procedures for changing either the current methods or the current parameters or assumptions relevant to a particular method.
(6) the firm's target range, or target ranges, that have been set and specified pursuant to COB 6.12.17 R; and
(7) the factors that the firm is likely to regard as relevant under COB 6.12.59 R.

30/04/2004

COB 6.10.30

The firm's with-profits practices should describe how the firm brings investment return, expenses or charges and tax into account and how the firm determines the impact of those items on the amount payable under a with-profits policy. In particular, the firm's with-profits practices should describe:

(1) any distinctions that the firm makes in recognising the investment return from a subset of the total assets of a with-profits fund;
(2) whether the firm apportions expenses fully between all the policies in a with-profits fund or apportions expenses in some other way, for example, by meeting some expenses from the firm's inherited estate;
(3) the relationship between the actual liability to tax of a with-profits fund and the tax that the firm imputes to determine the amount payable under a with-profits policy;
(4) the impact on the amount payable under a with-profits policy of any liability to tax of a with-profits fund as a result of the firm making a transfer to shareholders; and
(5) how the firm brings any other items into account, including, for example, charges made for the costs of guarantees, charges for the use of capital and charges for other risks.

30/04/2004

COB 6.10.31

The PPFM of a firm must cover the firm's approach to setting annual bonus rates applicable to with-profits policies.

30/04/2004

COB 6.10.32

The firm's with-profits principles should:

(1) describe the firm's general aims in setting annual bonus rates and the constraints to which the firm may be subject in changing economic circumstances; and
(2) indicate how the firm would determine the range of with-profits policies or generations of with-profits policies over which the firm believes a single bonus rate would be appropriate and the circumstances under which the firm believes a new bonus series would be necessary.

30/04/2004

COB 6.10.33

The firm's with-profits practices should:

(1) describe the firm's current approach to setting annual bonus rates, including the weight given to recent economic experience;
(2) indicate the frequency at which the firm re-sets or expects to re-set annual bonus rates;
(3) indicate the maximum amount (if any) by which annual bonuses would alter if the firm were to re-set annual bonus rates; and
(4) describe the firm's approach to setting any interim bonus rates before the next declaration of annual bonus rates.

30/04/2004

COB 6.10.34

The PPFM of a firm must cover the firm's approach to setting final bonus rates applicable to with-profits policies.

30/04/2004

COB 6.10.35

The firm's with-profits principles should describe the firm's approach to setting final bonus rates, in the context of the firm's general aims in determining the total amount payable under with-profits policies, and by reference to the constraints to which the firm may be subject in changing economic circumstances.

30/04/2004

COB 6.10.36

The firm's with-profits practices should:

(1) describe the firm's current approach to setting final bonus rates, including the weight given to recent economic experience. The description should include any distinctions that the firm makes between with-profits policies that remain in force until contractual dates, or dates on which no market value reduction applies (for example, maturity or retirement dates) and policies that are surrendered or transferred at other dates;
(2) describe the relationship or interaction between final bonus rates and any market value reductions, if both can apply at the same time;
(3) describe how final bonuses influence the value of with-profits policies that have formulaic surrender or transfer bases (for example, older conventional policies rather than unitised policies); and
(4) indicate the frequency at which the firm sets or expects to set final bonus rates and the circumstances under which changes in the economic environment would cause the firm to change the time between re-setting.

30/04/2004

COB 6.10.37

The PPFM must cover the firm's approach to smoothing the value of with-profits policies.

30/04/2004

COB 6.10.38

The firm with-profits principles should:

(1) indicate whether and in what respect the firm takes a significantly different approach to smoothing depending on the type of claim arising from with-profits policies;
(2) indicate whether the firm intends smoothing to be neutral over time;
(3) indicate whether there is any total scale or cost of smoothing to the firm over the shorter-term that the firm believes should not be exceeded. The FSA takes the cost of smoothing to mean the extent to which the amount actually payable under a with-profits policy diverges from the theoretical determinant of policy value under COB 6.10.26 R, except where due to applicable guarantees; and
(4) indicate whether the firm's applies market value reductions, or changes the surrender bases for with-profits policy that are not unitised, only to reflect changes in underlying asset values.

30/04/2004

COB 6.10.39

The firm's with-profits practices should:

(1) indicate how rapidly the firm might need to adjust the value of with-profits policies, by specifying any period over which the firm expects smoothing to be neutral;
(2) indicate whether there is any overall limit to the accumulated cost of, or excess from, smoothing that the firm is prepared to tolerate;
(3) indicate whether the firm applies a single smoothing strategy to all generations and types of with-profits policy, or applies different smoothing strategies to subsets of the with-profits fund, in particular whether (and in what respect) the firm applies a different smoothing strategy to new entrants to a with-profits fund when the accumulated cost or excess from smoothing is large;
(4) describe the firm's current approach to smoothing: for example, the acceptable degree of change in the value of similar with-profits policies from one year to the next, or the formula the firm uses to recognise recent investment performance as a determinant of the value of a with-profits policy;
(5) describe how the firm applies smoothing to classes of with-profits policies that participate in final bonuses indirectly: for example, older policies with formulaic surrender or transfer bases;
(6) describe how accurately the firm applies market value reductions or surrender and transfer bases to give effect to smoothing; and
(7) describe how the firm accounts for partial payments under with-profits policies to which no penalty (for example, by market value reductions) is applied, in determining the eventual total value of a with-profits policy.

30/04/2004

Investment strategy

COB 6.10.40

The PPFM of a firm must cover the significant aspects of the firm's investment strategy for its with-profits business or, if different, any with-profits fund, including:

(1) the degree of matching to be maintained between assets relevant to with-profits business and liabilities to with-profits policyholders and other creditors;
(2) the firm's approach to assets of different credit or liquidity quality and different volatility of market values;
(3) the presence among the assets relevant to with-profits business of any assets that would not normally be traded because of their importance to the firm, and the justification for holding such assets; and
(4) the firm's controls on using new asset or liability instruments and the nature of any approval required before new instruments are used.

30/04/2004

COB 6.10.41

The firm's with-profits principles should:

(1) set out the firm's investment strategy in terms that allow alternative with-profits practices to be judged and where necessary rejected. The firm's with-profits principles should therefore specify the specific factors that drive the firm's investment strategy, in more detail than, for example, simply achieving the best return within the framework of the likely volatility of asset values;
(2) if the firm relies on assets outside a with-profits fund to maintain the firm's investment strategy, state on which assets and to what degree the firm relies;
(3) set out how the firm views the use, as part of its investment strategy, of derivatives and other instruments that may alter the economic out-turn from assets;
(4) set out any constraints on the firm's investment strategy either with respect to parts of a with-profits fund (for example, classes of with-profits policy or bonus series) or between different generations of with-profits policyholders; and
(5) set out any overarching constraints on the firm's exposure to any one counterparty including derivative exposures.

30/04/2004

COB 6.10.42

The firm's with-profits practices should:

(1) describe what procedures the firm follows to transfer assets to the with-profits fund under COB 6.10.41 G(2) and at what point such transfers would be recognised as irretrievable by the provider of outside assets;
(2) set out the period between formal reviews of the firm's investment strategy;
(3) describe the degree of matching the firm maintains between the assets of a with-profits fund and liabilities to with-profits policyholders and other creditors, and the basis of the liabilities assessed for such purposes;
(4) explain the firm's approach to investment in different asset classes, and assets of different credit or liquidity quality. This may include, for example, the firm's guidelines as to the overall limit on the amount of a with-profits fund that may be invested in particular asset classes and the overall crediting rating of parts of the portfolio, the minimum credit quality of new and existing investments as well as the overall liquidity constraints on the with-profits fund; and
(5) explain the approval process that the firm operates before investing in new or novel investment instruments.

30/04/2004

COB 6.10.43

A with-profits fund may include assets that would not normally be traded because of their importance to the firm. These might be physical assets: for example, the firm's head office building, but may include contingent support or guarantee arrangements to or from other entities.

30/04/2004

COB 6.10.44

In relation to assets that would not normally be traded because of their importance to the firm, the with-profits principles of the firm should:

(1) describe why such assets are of use to a with-profits fund;
(2) describe what reviews the firm carries out to ensure those assets still remain of use;
(3) set out any limits that the firm imposes on the scale of investment in those assets;
(4) indicate whether the out-turn from investment in those assets will impact on the amounts payable under with-profits policies; and
(5) indicate what credit or liquidity requirements the firm applies to investments in those assets.

30/04/2004

COB 6.10.45

In relation to assets that would normally be trade, the with-profits practices of the firm should describe those assets, their current application in determining claim values and any constraints imposed on the firm's investment freedom as a result of its investment in those assets.

30/04/2004

Business risk

COB 6.10.46

The PPFM of a firm must cover the exposure of the firm's with-profits business to business risk, including the firm's:

(1) procedures for deciding if the with-profits business may undertake a particular business risk;
(2) arrangements for reviewing and setting a limit on the scale of such risks; and
(3) procedures for reflecting the profits or losses of such business risks in the amounts payable under with-profits policies.

30/04/2004

COB 6.10.47

Business risk for a with-profits fund can include a number of exposures, for example:

(1) exposure to maintaining and acquiring with-profits policies;
(2) exposure to maintaining and acquiring non-profit policies;
(3) exposure to risks from other investments: for example, in investment management companies, service companies or overseas subsidiary insurance companies.

30/04/2004

COB 6.10.48

The PPFM of a firm should make clear how the firm considers such exposures before they are taken up or entered into, and how the firm intends to deal with rewards or risks going forward. In particular, the PPFM should make clear what alternatives the firm sets as a benchmark when reviewing existing business risk and new business risks to determine whether the rewards are reasonable given the risks undertaken.

30/04/2004

COB 6.10.49

Where the firm explicitly excludes business risk from a class of with-profits policies there may often be residual risks from the class that are natural to with-profits policies such as guarantee and smoothing costs. The PPFM should make clear where such costs are borne.

30/04/2004

COB 6.10.50

The firm's with-profits principles should set out the general limits that the firm applies to the taking on of business risk and the control that the firm exercises over existing business risk. In particular, the with-profits principles should define where compensation costs from a business risk would be borne.

30/04/2004

COB 6.10.51

The firm's with-profits practices should:

(1) describe the current limits that the firm applies to the taking on of business risk;
(2) describe the firm's approach to the application of the rewards and losses from business risks as a determinant of the amount payable under a with-profits policy;
(3) describe the degree to which the firm smoothes any profits or losses from business risks before applying them to determine the amount payable under a with-profits policy;
(4) indicate whether profits or losses from business risks must exceed a minimum value or scale before the firm will treat them as a determinant of the amount payable under a with-profits policy; and
(5) indicate whether and to what extent particular generations of with-profits policyholders or classes of with-profits policy bear or might bear particular business risks, including, for example, crystallised or contingent guarantees to other classes of policyholder or whether the out-turn from all business risk is pooled across all with-profits policies.

30/04/2004

Charges and expenses

COB 6.10.52

The PPFM must cover the way in which the firm applies charges and apportions expenses to its with-profits business, including, if material, any interaction with connected firms.

30/04/2004

COB 6.10.53

The firm's with-profits principles should:

(1) describe the overall aim of the firm's approach to applying charges and apportioning expenses to with-profits policies, covering all types of charges and expenses including investment costs, commissions and charges borne from investment through collective investment schemes; and
(2) set out the factors that would drive any change to the basis on which the firm applies charges to or apportions its actual expenses amongst with-profits policies, or exercises any discretion to apply charges to particular with-profits policies.

30/04/2004

COB 6.10.54

The firm's with-profits practices should:

(1) give a general description of the charges that the firm currently applies and the expenses that it currently apportions to major classes of with-profits policies;
(2) describe the relationship between the firm's actual charges and expenses, as applied to determine the amounts payable under with-profits policies, and the charges and expenses borne by the with-profits fund;
(3) state the circumstances under which the firm will charge expenses to the with-profits fund at an amount other than cost, and the reasons why the firm will do so; and
(4) state the interval at which the firm will review any arrangements under which it obtains out-sourced services, included those provided by connected parties, and give a broad indication of the terms on which the firm would be able to terminate the agreements to provide those services.

30/04/2004

COB 6.10.55

The PPFM of a firm should make clear the criteria that the firm will apply when it has to make judgements about how to apply charges and apportion expenses between with-profits funds or between a with-profits fund and shareholder owned funds, firms or service companies.

30/04/2004

Management of the inherited estate

COB 6.10.56

The PPFM of a firm must cover the firm's management of any inherited estate and the uses to which the firm may put that inherited estate.

30/04/2004

COB 6.10.57

The firm's with-profits principles should:

(1) describe how the firm will manage its inherited estate;
(2) describe the purposes for which the firm will apply the inherited estate;
(3) indicate the size or scale of inherited estate for which the firm is aiming, for example, by reference to the volume of the firm's existing business or the risks borne by the firm's existing business;
(4) explain the implications of the firm's preferred size or scale of inherited estate for the value of the firm's with-profits policies;
(5) describe any existing division of the firm's inherited estate between with-profits funds within the firm; and
(6) describe any constraints on the firm's freedom to deal with the inherited estate as a result of previous dealings: for example, a transfer of business scheme or attribution or re-attribution of a previous inherited estate.

30/04/2004

COB 6.10.58

The firm's with-profits practices should:

(1) describe how the firm uses the inherited estate by, for example, reference to the costs the inherited estate is meeting;
(2) state whether the firm's investment strategy for the firm's inherited estate is different to the firm's investment strategy for the rest of the with-profits fund; and
(3) describe any current guidelines that the firm has in place as to the size or scale of the inherited estate or as to how the firm would mange the inherited estate and over what time period, if it became too large or too small.

30/04/2004

Volumes of new business and arrangements on stopping taking new business

COB 6.10.59

The PPFM of a firm whose with-profit fund is accepting new business must cover the firm's practice for review of the limits on the quantity and type of new with-profits business and the actions that the firm would take if it ceased to take on new with-profits business of any significant amount.

30/04/2004

COB 6.10.60

The firm's with-profits principles should:

(1) set out the firm's approach to setting the volume of new business, both new with-profits business and non-profit business written in the with-profits fund; and
(2) set out the firm's anticipated reaction to closure to significant amounts of new business and, in particular, what action it would take in that event as regards the distribution of any inherited estate.

30/04/2004

20040430

The firm's with-profits practices should:

(1) describe the approach the firm takes to setting any maximum volume of new business each year and any particular limits on classes of business, including non-profit business within the with-profits fund; and
(2) describe what the firm considers should be the minimum proportion and scale of new business of a with-profits type to justify the with-profits fund staying open to new business.

30/04/2004

Equity between the with-profits fund and any shareholders

COB 6.10.62

The PPFM of a firm must cover the firm's approach to achieving a balance between the interests of with-profits policyholders and the interests of any shareholders of the firm.

30/04/2004

COB 6.10.63

The firm's with-profits principles should:

(1) describe the firm's arrangements for profit sharing between shareholders and with-profits policyholders and the scope for changes in the share of profits allotted to each; and
(2) indicate the approach that the firm will take before any changes to the profit sharing arrangements are implemented.

30/04/2004

COB 6.10.64

The firm's with-profits practices should:

(1) indicate the current basis on which the firm divides profit between with-profits policyholders and shareholders, including the method of calculating the profit to be divided;
(2) indicate whether the division of profit between with-profits policyholders and shareholders would change if there was a change in the underlying basis on which the shareholder share is computed (normally the valuation basis of the mathematical reserves);
(3) indicate other factors that would have a significant impact on the balance between the shareholder share and the with-profits fund, for example:

(a) tax or other imposts; or
(b) distributions in anticipation of a surplus; or
(c) the firm's approach to with-profits policies with both an entitlement to final bonus and an exposure to a market value reduction; or
(d) the impact of guaranteed bonuses; and

(4) state whether the pricing of any policies that the firm is writing, and particular policies open to new business, appear to be significantly and systematically reducing the firm's inherited estate if the shareholder transfer is taken into account.

30/04/2004

COB 6.11

Reporting to with-profits policyholders on compliance with PPFM

01/12/2004

Application

COB 6.11.1

This section applies to a firm carrying on with-profits business other than:

(1) a non-directive friendly society; or
(2) an EEA insurer.

30/04/2004

COB 6.11.2

This section does not apply to with-profits business that consists of effecting or carrying out Holloway sickness policies.

30/04/2004

Purpose

COB 6.11.3

The rules and guidance in this section are intended to secure an appropriate degree of protection for with-profits policyholders and potential with-profits policyholders and to promote confidence among such policyholders by:

(1) giving guidance on governance arrangements relevant to the way in which with-profits firms comply with SYSC in the conduct of with-profits business; and
(2) requiring firms to make an annual report available to with-profits policyholders.

30/04/2004

Governance arrangements for with-profits business

COB 6.11.4

In complying with SYSC 3.2.6, a firm should maintain governance arrangements designed to ensure that in the conduct of with-profits business it complies with, maintains and records any applicable PPFM.

30/04/2004

COB 6.11.5

The governance arrangements referred to in COB 6.11.4 G should:

(1) be appropriate to the scale and complexity of a firm's with-profits business; and
(2) involve some independent judgement in the assessment of compliance with PPFM and how any competing or conflicting rights and interests of policyholders and, if applicable, shareholders have been addressed.

30/04/2004

COB 6.11.6

The independent judgement in COB 6.11.5 G(2) can be provided in different ways. These may include but are not confined to:

(1) establishing a committee of the governing body (a With-profits Committee), including non-executive members of the governing body and possibly some external non-directors with appropriate skills and experience;
(2) asking an independent person with appropriate skills and experience to report on these matters to the governing body or to any With-Profits Committee; or
(3) for small firms in particular, asking a non-executive member (or members) of the governing body to report to the governing body on these matters.

30/04/2004

COB 6.11.7

For the purposes of COB 6.11.6 G(2), appropriate skills and experience could have been gained in, for example, consumer protection, the life insurance industry, regulation or as a member of the accountancy, actuarial or legal professions.

30/04/2004

COB 6.11.8

If a person or committee who provides the independent judgement under COB 6.11.5 G(2) wishes to make a statement or report to with-profits policyholders, in addition to that made by a firm under COB 6.11.9 R, a firm should facilitate this. COB 6.11.12 G is also relevant to such a report.

30/04/2004

Annual report to with-profits policyholders

COB 6.11.9

A firm must produce an annual report to its with-profits policyholders stating whether, throughout the financial year to which the report relates, the firm believes it has complied with the obligations relating to PPFM referred to in COB 6.11.4 G and setting out the firm's reasons for that belief.

30/04/2004

COB 6.11.10

The annual report in COB 6.11.9 R must address all significant relevant issues, including the way in which the firm has:

(1) exercised, or failed to exercise, any discretion that it has in the conduct of its with-profits business; and
(2) addressed any competing or conflicting rights, interests or expectations of its policyholders (or groups of policyholders) and, if applicable, shareholders (or groups of shareholders).

30/04/2004

COB 6.11.11

The report to with-profits policyholders made under SUP 4.3.16AR (4) by a with-profits actuary must be annexed to the annual report in COB 6.11.9 R.

31/12/2004

COB 6.11.12

Any statement or report made under COB 6.11.8 G should be annexed to the annual report in COB 6.11.9 R.

30/04/2004

COB 6.11.13

The competing rights, interests or expectations in COB 6.11.10 R(2) include the competing interests of different classes and generations of with-profits policyholders, and, if applicable, shareholders.

30/04/2004

COB 6.11.14

In preparing the report to with-profits policyholders in COB 6.11.9 R, a firm should take advice from a with-profits actuary.

31/12/2004

COB 6.11.15

A firm should make the report in COB 6.11.9 R available to with-profits policyholders within six months of the end of the financial year to which it relates. A firm may choose how it makes the report available. Methods of delivery might include publishing the report on the firm's website, providing copies on request, or including it in the firm's annual financial statements. A firm should notify its with-profits policyholders in any annual statements how copies of the report can be obtained.

30/04/2004

COB 6 Annex 1

Decision trees for stakeholder pension schemes (as required in COB 6.5.8R): text, content and format (R)

01/12/2004

This annex consists only of one or more forms. Forms are to be found through the 'Forms' link at www.fsahandbook.info or through the Handbook section of the CD-ROM under Forms.

01/05/2004

COB Conduct of Business

Product disclosure and the customer's right to cancel or withdraw

Productdisclosure and the customer's right to cancel or withdraw

Product disclosure

Application

Application of COB 6.2.26R

Purpose

Requirement to produce key features

Quality and production of key features

Provision of key features

Application

Medium for provision of key features

Life policies

Exception for life policies: sales through intermediaries

Life policies: pre-completion variations

Variations to existing life policies

Exception for life policies: non-UK customers

Exceptions for life policies: variations held within a CTF

Provision of key features: schemes

Exceptions from the requirement to provide key features for schemes

Requirement to offer a simplified prospectus for section 264 schemes

Post-sale confirmation: life policies

Application

Exceptions to post-sale confirmation

Product disclosure: special situations

Application

Occupational pension schemes

Self-invested personal pension schemes

Income withdrawals

Cash deposit ISAs and cash deposit CTFs

Traded life policies

Stakeholder pension schemes

Entering into a distance contract for accepting deposits (other than a cash deposit ISA)

Exemption: telephone sales

Exemption: certain other means of distance communication

Exemption: successive or separate operations under an initial service agreement

Exemption: other successive and separate operations

Exemption: Revenue allocated accounts

Content of key features and important information: life policies, schemes, ISA and CTF cash deposit components and stakeholder pension schemes

Application

General

Stakeholder pension schemes: decision trees

Table of Information/Applicable provisions

This table belongs to COB 6.5.2 R (1)

Title

Nature of life policy or scheme or stakeholder pension scheme

An example

Description of the life policy or scheme or stakeholder pension scheme

Tables and deductions summaries for life policies, schemes and stakeholder pension schemes

Tables for life policies

The early years

This table belongs to COB 6.5.23 R

Deductions summary for life policies

Calculation method for 'effect of deductions to date' for life policies

Table for schemes

This table belongs to COB 6.5.30 R

Deductions summary for schemes

Calculation method for 'effect of charges to date' for schemes

Stakeholder pension schemes

CTFs and stakeholder products: annual charges

Commission and commission equivalent for life policies, schemes and stakeholder pension schemes

Further information for life policies, schemes, insurance or equity ISAs, PEPs, CTFs and stakeholder pension schemes

Friendly Society tax exempt policies

Traded life policies

Broker funds

Other information: post-sale confirmation: life policies

Consolidated Life Directive annex III: 'information for policyholders'

Consolidated Life Directive annex III table of 'information for policyholders'

This table belongs to COB 6.5.47 R

Life policies: requests for quotations for surrender values

Open market option: "Wake-up letter"

Open market option: "Reminder letter?"

Pension income withdrawals and phased retirement

Projections

Application

Purpose

Content

General

Exceptions

Higher volatility funds

Product
disclosure and the customer's right to cancel or withdraw