The CETV guarantee date is not a deadline

A firm should acknowledge the importance of a CETV and the guarantee expiry date, but it is not a deadline in which financial advice must be concluded
May 2021

Alistair MacDougall

Technical Manager, ATEB Compliance

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Risk Disclaimer

The information, opinions, estimates or forecasts contained in this article were obtained from ATEB Compliance, are reasonably believed to be reliable and are subject to change at any time. It has been produced for information only.

Views and opinions are those of the author and do not necessarily reflect those of BMO Global Asset Management and should not be considered to be a recommendation or solicitation to buy or sell any companies that may be mentioned. No action must be taken or refrained from being taken based on this content alone.

Key takeaways:

  • Understand the timelines that apply for transacting Defined Benefit transfers
  • Describe some of the consequences and options available if these timelines are breached

The CETV guarantee date is not a deadline

A client approaches a firm with a guaranteed Cash Equivalent Transfer Value (CETV) and wants financial advice. More specifically, they have asked whether they should transfer out of their DB scheme. The CETV guarantee date expires soon. Sound familiar? So what does this mean for advisers and should the guaranteed CETV be treated as a deadline?

 

The three month guarantee period

When a member requests a CETV, the trustees of the scheme must issue this within three months of the request and state the date to which the guarantee applies. The CETV is then valid for three months from the guarantee date, and if the client wishes to transfer their pension, they must receive financial advice* from a qualified financial adviser and sign and return the discharge papers before the CETV expiry date, to secure the transfer value quoted. (* where the value of safeguarded benefits exceeds £30,000).

If the discharge papers are signed after the CETV has expired, then the scheme is within its rights to recalculate the CETV, which could result in the client receiving a lower CETV. Some firms will agree to a transfer going through (if the discharge papers are received within one month of the guarantee date having expired) on condition that the recalculated CETV is no lower than 10% of the original CETV, however, this is not the case with all schemes.

 

Deadline or not?

While a firm should acknowledge the importance of a CETV and the guarantee expiry date, it is not a deadline in which financial advice must be concluded as there are other options that can be considered. However, before agreeing to take on a client, a firm should consider whether they have sufficient time (given client circumstances) to be able to provide robust retirement planning advice to the client, giving the client sufficient reflection time to make an informed decision, prior to the CETV expiring. If a firm cannot provide financial advice to the client before the CETV expires, but still wishes to take on the client, then they have the following options:

  • Contact the scheme
    The first option would be to contact the scheme and ask if they will honour the CETV. We have seen instances in which a scheme has agreed to honour the existing CETV rather than run a full recalculation. This would not normally incur any additional cost for the client or the firm, but gives certainty that the advice can be based on the quoted CETV.
  • Apply for a new CETV
    Most schemes offer one CETV calculation without charge within a 12 month period, but will charge an additional fee for a recalculation, usually around £250. It should be noted that if, upon recalculation, the client’s CETV has changed (positive or negative), then any analysis must be based on the new CETV, which will need to include a new TVC and related analysis. Firms should also consider whether the new CETV would affect the adviser charge.

 

Can we proceed regardless?

We have seen evidence of firms accepting clients even though the CETV is close to expiry (sometimes within 2-3 weeks of the expiry date or even shorter). Realistically, this leaves insufficient time in which the firm can receive all the details from the scheme (which can take up to 6 weeks), put the recommendation together, discuss it with the client and leave an appropriate period for the client to reflect on the decision whether to transfer or not.

We have also seen firms proceeding with advice even though the CETV guaranteed date has expired. We would strongly recommend against this course of action for the main reason being that the client may receive a substantially lower CETV once the scheme recalculates their benefits. Should this happen, then the whole advice may be brought into question. For example, the client may not be able to achieve their objectives of making a capital purchase through tax free cash only and may be need to also access taxable income, the cashflow model may be incorrect leading to sustainability issue or the firm may be charging the client a larger fee versus their fee scale percentage as the initial fee could be based on the original CETV. Making a recommendation on the basis of an incorrect CETV is probably not compliant.

Risk Disclaimer

The information, opinions, estimates or forecasts contained in this article were obtained from ATEB Compliance, are reasonably believed to be reliable and are subject to change at any time. It has been produced for information only.

Views and opinions are those of the author and do not necessarily reflect those of BMO Global Asset Management and should not be considered to be a recommendation or solicitation to buy or sell any companies that may be mentioned. No action must be taken or refrained from being taken based on this content alone.

Our view

  • The CETV is NOT a deadline by which advice should be provided;
  • If treated as such, it can lead to advisers rushing through or streamlining the advice process, not allowing sufficient reflection time for clients and can lead to poor client outcomes;
  • Firms should consider whether it is appropriate for them to take on clients with short dated CETVs and, if they agree to take on these clients, how robust financial advice can be provided;
  • We strongly recommend that where firms decide to take on a client with a short dated CETV, they 1) contact the scheme to see if they will honour the CETV; 2) apply for a new CETV;
  • Firms should not provide a recommendation to a client once the CETV has expired;
  • In order to manage client expectations and avoid potential complaints, firms should have a disclaimer for the client to sign at outset stating that the firm does not guarantee to be able to complete the normal advice process by the CETV guarantee expiry date and that, in the event of overshooting the date, the client will need to request an extension of the date or a recalculation of the CETV at the client’s cost.

 

Action required by you

  • Consider whether your firm’s existing approach takes into account how to proceed in the event of a client with a short dated CETV;
  • Speak with your ATEB compliance consultant if you have any further queries, or contact ATEB directly.

 

ATEB Compliance is a trading name of ATEB Business Solutions Limited Registered in England & Wales Reg. No: 5075208. Registered office: Evolve Business Centre, Cygnet Way, Houghton-le-Spring, County Durham, DH4 5QY

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