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Changes to capped income pension illustrations


On 25 March 2011, the FSA issued revised conduct of business rules governing the way in which providers must illustrate the future value of benefits for customers in, or entering capped income.

The new FSA rules significantly alter the basis of projecting future benefits of customers with capped income and critical yield outputs that will apply alongside of the projections themselves.

The rules come into effect from the end July, and to ensure compliance with these new requirements, Old Mutual Wealth has made changes to capped income pension illustrations for the Collective Retirement Account (CRA).

You may have customers where the underlying analysis around the decision to use, or continue capped income will need adjustment to reflect the new rules.

Which Old Mutual Wealth's platform products are affected by the FSA changes?

The changes apply to customers in capped income who use the CRA.

There is no change to the illustration rules for customers with funds not yet in capped income.

(Separately, similar changes apply to the Old Mutual Wealth Personal Pension Income Plan available through Old Mutual Wealth. More details on this are available on Adviser View).

What are the changes exactly?

10 year projection term

From 01 August 2011,we have provided an automatic annuity comparison for customers with capped income at a point 10 years beyond the customer’s current age.

Can another retirement age be selected?

The requirement for a 10 year comparison is mandatory and all providers must provide such illustrations regardless of a customer’s intended annuity purchase age.

However we appreciate you will, in many cases, want illustrations that reflect alternative ages that may be more suited to the customer’s current intended retirement plans. Our updated illustrations allows you to select an additional retirement age for an annuity comparison and critical yield purposes.

Are there any conditions that apply to the retirement age?

For the CRA, where income withdrawal can continue beyond 75, a maximum age of 120 will be available. This allows significant flexibility to illustrate an alternative annuity comparison date for your customers.

Our Critical Yield A&B figures use a 10-year illustration term and the additional selected retirement age where you have requested this.

Examples of how the new rules will work

The table below shows how the default annuity comparison illustrations work for customers who have capped income in the CRA and the different position for illustrations of uncrystallised funds:

Age selection Type Illustration for CRA
None Drawdown 10 year projection only
65 Drawdown 10 year projection and to age 65
78 Drawdown 10 year projection and to age 78
None Uncrystallised To age 75
Current age plus 10 years if age at date of illustration >=75
65 Uncrystallised Age 65 only
78 Uncrystallised Age 78 only

When will Old Mutual Wealth’s platform illustrations be updated?

From 01 August 2011. Both pre-sale and post issue illustrations have been updated to reflect the changes described above.

Our critical yield calculator has also been updated at the same time.

What about transition illustrations?

You may have customers either in, or moving into capped income where pre-sale illustrations will be produced on the current basis and where, on completion of the transaction from week commencing 01 August 2011, a post sale illustration has be provided on the new terms outlined above.

We will not be able to provide updated pre sale illustrations on the new terms post completion of the business.

You may have customers where the underlying analysis around the decision to use, or continue capped income will need adjustment to reflect the new rules.

Further information and support

For further information and support, please contact your Old Mutual Wealth Business Consultant.

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