Updated and streamlined RATS rules came into force on 31 December 2015.
Whilst these on the whole represent a welcome development, trustees should nonetheless think carefully about how to operate RATS in light of these.
A Retirement Annuity Trust Scheme (“RATS”) is a type of Guernsey domestic personal pension scheme. These pension schemes must comply with various requirements, including, in cases where the member is a Guernsey resident or has made Guernsey tax-relieved contributions, the requirements set out in rules published by the Guernsey Financial Services Commission (the “RATS Rules”).
The RATS Rules have from 31 December 2015 been replaced with new rules which are intended to be more streamlined and help providers offer a more flexible and cost effective product. Nicholas Donnithorne and Anna Gray of Babbé consider some of the key changes.
Summary of changes under new RATS rules from the position under the old RATS rules
This is a summary only for illustrative purposes
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- Advice at outset: no longer necessary to assess suitability of product or request a copy of the advice to the member on this, but existing regulatory laws including rules and codes of conduct requiring advice to retail clients on controlled investments or long term insurance products to be given by a Financial Adviser continue to apply. The RATS Rules no longer require trustees to give a specified statement to members regarding investment and mortality risk. However, we suggest it is still helpful for trustees to consider making such a statement.
- Investment options: 3 investment approaches are now possible. (1) Member self-directs investments with trustees having no role; (2) investments are made on the advice of an appropriate advisor from a range of investment types listed in the RATS Rules; or (3) the traditional approach with trustees satisfying themselves of the suitability of investments and investment strategy. There are different formalities for each approach.
- Assessment of the level of drawdown payment for RATS in payment: broadly similar requirements apply, but the wording has subtly changed. Trustees should familiarise themselves with the new requirements.
- Fee commission/disclosure: broadly the same requirements, but wording is more streamlined. There is no express exclusion of arm’s length transactions where fees are not shared with any other party.
- Transfers from defined benefit pension schemes: same requirements, but trustees must also ask members to sign to confirm they understand the consequences of such transfer.
- Gearing: same requirements, but trustees must also ask members to sign to confirm they understand the implications of borrowing.
- Annual statement to members on financial position of RATS: same requirements.
- Advertising and promotions: same requirements.
- Compliance with income tax requirements: same requirements.