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Tenet says strip out ongoing charges on pension switching

Tenet has told members to no longer include ongoing advice charges in critical yield calculations for pension transfers.

In an update issued last month, the network says ongoing fees do not need to be factored into critical yield calculations. It has stated that ongoing charges must still be clearly communicated to the client. Previously, Tenet required ongoing charges to be factored into critical yield calculations with all other costs.

Critical yield is a method of assessing suitability of pension transfer cases, which provides a way of assessing the annual rate of growth needed for a new pension plan to provide an identical fund value at retirement to the current plan, taking into account any charges incurred in the transfer.

Tenet group regulatory director Gill Davidson says: “The policy regarding ongoing fees for pension switching was previously that they were factored into the critical yield calculator with all other costs.

“However, to provide increased transparency for consumers the initial and ongoing elements of cost are separated out.

“The impact of any facilitated fees are still fully disclosed to the client, should they choose this means of settling the adviser charge. The adviser is therefore put in a position where they can independently demonstrate both the suitability of the product and any additional services purchased by the client in relation to specific client needs.”

Investment Quorum chief executive Lee Robertson says: “If advisers are seeking to be transparent and provide a picture as close to the real running costs as possible, then ongoing charges should be included in critical yield calculations.”


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There are 7 comments at the moment, we would love to hear your opinion too.

  1. Well this is a logical consequence of the separation of advice charges from product within the meaning of RDR.

  2. It is only logical to include them if there is a level playing field.

    If advice fees paid outside the plan don’t need to be included then facilitated ones don’t either.

    There is also an issue of clear client advantage if a plan is moved from an old style contract where servicing commission is no longer paid but kept by the insurance company (against the spirit of RDR) as even if the Critical Yield is higher with the new company, the client is getting something for their money.

    Provided charges are transparent and clearly understood then the only thing that should matter is COBS 2.1.1 – client’s best interest.

  3. Personally I would go belt and braces. Give two critical yield calculations, one with no ongoing adviser charge and one with the likely/recommended ongoing adviser charge.

  4. Ongoing charges are not a fact of life. They can be stopped, increased or kept as at outset.

    The problem with the clarion call for transparency is that nothing stays the same so any illustration is by definition flawed.

    It is entirely logical to remove ongoing charge figures from such illustrations as this shows the product and known product costs. The adviser charge may or may not apply and should be notified separately.

  5. Life offices din’t take account of actual charges when calculating critical yield for illustrations for pension transfers and the regulator was complicit.

  6. This is a good move from Tenet, it is comparing like with like – let’s see the regulator’s reaction.

  7. The FCA Road Show suggests showing projected benefits under the proposed plan both pre and post adviser charge but this was addressing “illustrations” and not Critical Yield calculations.


    a)Critical Yield calculations are not a regulatory requirement
    b)The removal of adviser charging from Critical Yield is reasonable as you then compare a “like for like”.

    Let us take a pension where no trail is paid to the adviser ( it may still be paid to the pension provider). Why should we accept a pension projection where “no” adviser fee has been included and then compare it with a new proposed switch where the “adviser fee” has been included?

    The logic being that we either also add the adviser fee to the former contract and then compare “like for like” with the same fee added to the new proposals or we remove the adviser fee from both. We then have a fair like for like comparison.

    c)Failing all of this we could put a footnote under the critical figure saying that the client should deduct the adviser fee from the Critical Yield figure or add it to the former pension figure, the assumption being that an adviser fee will be charge to the former or the latter. In cases where trail is paid by the legacy pension business then this figure can be offset.

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