Treating customers fairly in with profits
Treating Customers Fairly (TCF) is a key part of our regulator's (the FCA’s) approach to principles-based regulation. The FCA has set out a series of outcomes that it expects both product providers and advisers to deliver for customers. The FCA website gives full details of these outcomes.
Legal & General is committed to fulfilling its TCF requirements and helping advisers help customers.
Adviser and provider responsibilities
Plan providers and advisers are required to help customers make informed decisions regarding their with profits investments. In particular, information should:
- Provide investment performance information so that customers (or their advisers) understand how their investment is performing.
- Enable customers to judge if the plan continues to meet their requirements.
- Remind customers of the key benefits of their plan, particularly if they are about to take action that could result in them losing these benefits.
A large number of policies have been made available across the UK market over the last few decades. With all the different approaches to providing with profits policies and products, it would be difficult for advisers to know the detail of all policies available.
We believe there are key events during the investment journey that may require specific advice, for example, switching investments, pension transfers, early retirement, surrendering/early surrenders or taking Personal Retirement Plan benefits before age 60.
The information below will help you understand the key considerations when advising a Legal & General with profits customer at these events. We've also provided some questions and answers that may help you understand more about Legal & General's with profits contracts.
Important considerations at key events in the customer's investment journey
This is not an exhaustive list as all customers and their circumstances are different. You should carefully consider the specific advice required, and be happy with the information provided for each individual.
|Consideration||Key event(s) when this consideration may apply|
|A Market Value Reduction (MVR) may apply.||Switching |
One off and regular withdrawals
|The customer may lose out on investment growth if their policy has a guaranteed minimum annual growth rate. (Contractual Annual Interest/Contractual Minimum Addition applies, at varying rates, to certain policies).||Switching |
|If the customer's policy includes a guaranteed annuity rate, they may lose out on their pension income.||Switching |
Early retirement (if the customer buys their pension from a different provider)
|The customer may lose out on the opportunity of guaranteed returns at set dates. Please see your client's Key Features for full details.||Switching |
One off and regular withdrawals
|The policy may become non-qualifying for tax purposes and the customer may be liable for tax. (Life policies only)||Switching |
|The customer may lose life insurance and critical illness cover benefits that are built into their policy.||Surrendering/early surrenders |
|The customer may not receive as much as their Guaranteed Minimum Pension (GMP), if applicable.||Pension transfers|
The Personal Retirement Plan (PRP) has some valuable benefits. There are various things customers should bear in mind if they are considering transferring out of their PRP or taking their benefits, particularly if this is earlier than age 60. See the following Personal Retirement Plan factsheets for more information:
PDF file: What is a Personal Retirement Plan PDF size: 46KB
PDF file: Understanding your Personal Retirement Plan Q21720 PDF size: 42KB
|Taking Personal Retirement Plan (also known as Golden Years Plan) benefits before age 60|
What is a Market Value Reduction (MVR)?
An MVR is used to make sure that we treat all our with profits customers fairly by getting their fair share of the assets, whether they stay in with profits or withdraw early. Some plans have certain points when an MVR will not be applied, please note MVRs do not apply to benefits paid out on death.
We usually apply an MVR when investments, such as shares or commercial property, haven't performed as well as we've allowed for when setting bonuses. These values can change frequently, so you should expect these conditions will apply at some point. This may result in a customer getting back less than they put in. Our factsheet PDF file: Understanding Market Value Reductions Q28306 PDF size: 48KB explains how this works.
What are Contractual Annual Interest (CAI) and Contractual Minimum Addition (CMA)?
On some types of plan, a customer’s with profits investment will grow each year at either a set rate that we guaranteed when we received their investment (CAI) or at a rate set at the beginning of each calendar year (CMA). These guarantees could be of significant value to the policyholder. Both CAI and CMA increase the value of plans each year by the addition of units, as described in the policy / plan documents.
The amounts of CAI and CMA are taken into account when we calculate bonuses. This means policyholders who receive CAI and/or CMA may receive a lower annual bonus (or no annual bonus at all) than those who do not. This is so that their overall return does not exceed the amount we consider appropriate in order to treat all of our with profits policyholders fairly. If CAI and/or CMA applies to a customer's policy / plan, it will be shown on their bonus statement.
Which plans have guaranteed rates that can be used to turn the fund into a pension income (guaranteed annuity rates)?
Guaranteed rates apply to occupational plans taken out as a result of the High Performance Pension Plan and Personal Investment Plan for Executives (HP3/PIPE) conversion exercise in 1996 onwards. Many of these plans were converted to Executive Pension Plans, or to Section 32 Buy Out Plans. Personal Retirement Plans / Golden Years Plans also have annuity guarantees available from the customer's 60th birthday.
For further information and communications that will help customers make an informed decision about their policy, please view our with profits literature.
Please speak to your usual Legal & General representative or call us on 0345 273 0008. Call charges will vary. We may record and monitor calls.