What changes will we see in April 2020?
Having considered what goes into a KFI, let’s now take a look at the changes the FCA is introducing from April 2020 for drawdown and UFPLS KFIs.
The simplest way to explain the changes is by breaking them down into their impact based on either the point in time when the illustration has to be provided or on what makes up the contents of the illustration.
When information must be provided
As touched on above, current rules, require that when a client varies their personal pension either by starting to take payments from their drawdown fund or by taking a one-off, ad-hoc or regular UFPLS they must be provided with sufficient information to understand the consequences of that action.
This information can include, where relevant, the projection element of a key features illustration.
From April 2020 the FCA has expanded the number of events which will create a requirement to provide a client with projection/illustration-related content.
It will also require a full KFI to be required in a number of different circumstances, rather than allowing firms to rely on the “sufficient information to understand” requirement.
Going forward the list of events at which information will need to be provided with a KFI will include:
- When a client first moves all or a part of their pension into drawdown, so when they initially crystallise some or all of their funds. A KFI will be a requirement regardless of whether or not the client physically starts taking any drawdown payments at the point of crystallisation;
- On the first occasion that the client takes a payment from their drawdown fund;
- On the first occasion that the client takes an ad-hoc or regular UFPLS payment; and
- Any request to purchase a short-term annuity.
In addition to the circumstances where a full KFI must be provided, we will still have one situation where the rules only require the “sufficient information to understand, including a projection” rule to be met.
This will be where a client asks to take a further payment an existing drawdown fund or makes a further UFPLS request.
All of this is in addition to the more general requirement, where a client varies their personal pension scheme, to provide sufficient information to allow them to understand the consequences of the variation, but without referencing a projection.
The FCA has confirmed one situation where a standalone KFI will not be required in the circumstances above.
This will be where the key features document of the relevant product includes both the information required in the key features illustration and also the summary key information.
What packs must contain
The April 2020 change that has attracted the most significant attention is the requirement to include a set of summary key information in the illustration.
This summary must be placed at the front of the KFI or KFD and must not exceed a page in length when printed.
Firms are exempted from including the summary key information if they expect the client will reduce the value of their pension to zero.
In all other circumstances the summary key information page has to include:
- The value of the crystallised and uncrystallised funds in the pension scheme. There had been some debate as to whether these values could be combined but in response to industry queries the FCA has confirmed the values must be shown separately.
- The value of the client’s tax-free cash payment.
- The projected value of the client’s pension scheme five and 10 years after the date they crystallise funds.
- The percentage reduction in yield caused by charges.
- The client’s age at the point in time their fund will reduce to zero, if relevant.
- The amount of product charges (including where relevant investment charges) and adviser charges the client can expect to pay in the first year following crystallisation.
- The start date of the income drawdown fund or arrangement to make one or more UFPLS payments, together with details of the dates and amounts of physical payment.
The contents of the summary key information broadly appear to make sense.
