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Not a Pointless Answer I’m Afraid

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Ignorance of the law (and of regulation) is no defence against the consequences of a breach. So it is important to know what it is and understanding what it means in practice.

Similarly, rule makers ought to make this as easy as possible for rule takers. The makers of pensions law and regulation have not, in our opinion, been terribly successful at this. I have a job because they have been unsuccessful in this.

We are regularly called upon to help our clients understand what they need to do (or not to do, or never to do under any circumstances). Such as when I was asked whether an individual has to be sent a key features document after a buyout.

Surely, I thought, this is just a case of checking the Financial Conduct Authority’s Handbook, looking at a list of situations when you need to send such a document, and scanning for the word ‘buyout’. I might even get to clock-off early and clock-up some high scores playing along with Pointless. Our enquirer had even done some of the legwork themselves and found the list.

A buyout is essentially where an insurance company is paid a wedge and in return they take over responsibility from the buyer for a defined benefit pension liability. It’s an uncomplicated, widely-adopted industry term. It was not in the list though.

Not to worry. There had to be a broader, equally uncomplicated/widely-adopted term that encompasses buyouts. This is the first item in the list of situations requiring a key features document:

A firm that sells, or (where relevant) gives effect to a non-PRIIP packaged product to a retail client, must provide a key features document and a key features illustration to that client (unless the packaged product is a unit in a regulated collective investment scheme);

This 45 word sentence contains nine separate defined terms (the ones in bold).

Not to worry. I was confident that ‘firm’ applied to this situation*, and I felt it was safe to assume a buyout policyholder was a ‘client’, and even a ‘retail client’. But what on Earth is a ‘non-PRIIP packaged product’?

*apart from the fact that ‘firm’ is incongruously defined as ‘an authorised person’.

The online FCA Handbook has a useful feature here. You can just click on a defined term such as this and discover that it is:

A packaged product other than a packaged retail and insurance-based investment product (“PRIIP”).

The number of terms I needed to understand had a worrying R-number. But ‘packaged product’ sounded like it could describe a buyout policy. And I didn’t think it was an investment product. Were those hunches correct, the answer would be a simple ‘Yes’. Well, provided they aren’t a ‘unit’ in a ‘regulated collective investment scheme’. Richard Osman awaits.

I clicked the link for a ‘packaged product’ definition:

(a)       a life policy;
(b)       a unit in a regulated collective investment scheme;
(c)       an interest in an investment trust savings scheme;
(d)       a stakeholder pension scheme;
(e)       a personal pension scheme;
whether or not (in the case of (a), (b) or (c)) held within an ISA or a CTF and whether or not the packaged product is also a stakeholder product.

Not to worry. A buyout policy has to be a ‘life policy’ doesn’t it?

…a long-term insurance contract (other than a reinsurance contract [not defined] and a pure protection contract); and
(a)       a long-term care insurance contract; and
(b)        a pension policy;

unless (2) or (3) apply.

I’ll stop there.

But in reality, I couldn’t stop there. I had to start recording all the definitions so I didn’t lose my place. The final ten page collection contained 27 definitions, including ‘limited partnership scheme’, ‘Regulated Activities Order’, and ‘per se eligible counterparty’. This was all to find out whether the first bullet in a list was applicable.

I did not hear Alexander Armstrong’s dulcet tones until a Have I Got News for You rerun on Dave at 9.30 pm.

Of course, one could save time and assume that a key features illustration is needed. But this contributes to the situation where people are inundated with barely-relevant comms from financial services providers to the point that they do not engage with any dispatches. Our enquirer should be able to get a yes/no answer in a matter of minutes. It shouldn’t take them asking us, and us then taking hours. Even if sometimes, to be honest, I enjoy the chase.

Gareth Stears, Pension Technical Consultant, Aries Insight