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Required FSP Licence to Give Living Annuity Advice |
It can be a little confusing to understand what category FSP licence is required in order to give financial advice on living annuities. The short answer is that in order to be able to give investment advice on all the different variations of living annuities, the FSP needs to be licenced for both:
Long-term Insurance Category C
Retail Pension Benefits
The retirement fund from which the annuitant is retiring, provides the annuity, the pensioner remains a member of the fund, and the fund retains its responsibilities to the member (e.g. preferring to pay dependants death benefits). The living annuity is subject to the rules of the fund, the Pensions Fund Act and the Income Tax Act. An FSP needs to be authorised for subcategory "Retail Pension Benefits" to give advice in this scenario.
The fund uses a retiring member's investment balance to provide a pension to the member.
Similar to (1.), but in this case the fund buys a policy which it owns to provide the member with a pension benefit. Whilst the fund owns the policy, the member is responsible for investment choice (to the extent that the fund offers choices).
The retirement fund from which the annuitant is retiring divests itself of responsibility for the provision of annuity payments. In this case the annuity is subject to the Long-term Insurance Act, rather than the Pension Funds Act. Annuitants can then ensure that death benefits are paid out to their stipulated beneficiaries (ie it's not subject to the trustees).
The rules of the fund may stipulate that the fund must divest itself of responsibility when members retire. An FSP needs to be authorised for subcategory "Long Term Insurance Category C" to give advice in this scenario.
It may be optional for the retiring member to disinvest from the fund. An FSP needs to be authorised for subcategory "Retail Pension Benefits" to give advice in this scenario.
The fund may decide to convert from a structure where it provides the annuity, to one where it is divested of responsibility for providing the annuities. If the fund gives no choice to the member but to go into a living annuity, then an FSP needs to be authorised for subcategory "Long Term Insurance Category C" to give advice in this scenario.
Click here to see the details of the FSB cirilular on which this article is based.
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