Cashflow Rules for Defined Benefit Advice

Are you prepared for the changes in rules and guidance of cashflow modelling for DB advice? No? Don’t worry, we have pulled together all the key points you need to know.

The FCA’s new rules and guidance come into play from 1st October 2020, in line with the other handbook changes included in the Policy Statement 20/6.

The Rules

  • Cashflow modelling must be done in real terms (i.e. inflation-linked) and should use reasonable assumptions for tax bands and limits as well as allowing for taxes that are likely to arise on a transfer e.g. Lifetime Allowance (LTA).
  • Cashflow models should include some form of stress testing.

The Guidance

    • You should use cashflow modelling to show how income from the client’s different assets would start at different ages and meet the clients essential and lifestyle needs.
    • The cashflow model should be run to age 100.
    • The growth rates in the cashflow model should be the same as those that are used in the Key Features Illustration (KFI).

Cashflow Rules for Defined Benefit Advice