FCA Proposes Pension Transfer Advice Changes

FCA Proposes Pension Transfer Advice Changes.

The Financial Conduct Authority (FCA) has published new proposals on advice relating to pension transfers where consumers have safeguarded benefits, primarily for transfers from defined benefit to defined contribution pension schemes.

The FCA proposals aim to reflect the current environment and the increased demand for pension transfer advice. Since the introduction of the pension freedoms in April 2015, consumers have more options available to access their pension savings. This has combined with more recent changes to the financial environment leading to historically high levels of transfer values. 

The new rules outline the FCA’s expectations of advisers and pension transfer specialists to ensure that consumers receive advice which considers all relevant factors.

The proposed changes include requiring transfer advice to be provided as a personal recommendation, and replacing the current transfer value analysis with a comparison to show the value of the benefits being given up. Taken together as a package, the proposals will ensure that advice fully takes account of an individual’s circumstances so that consumers make the right decision for them.

Christopher Woolard, Executive Director of Strategy and Competition at the FCA said: 

“Defined benefit pensions, and other safeguarded benefits such as guarantees, are valuable so most consumers will be best advised to keep them. However, we recognise that the environment has changed significantly, so we want to ensure that financial advice considers the customer’s circumstances in full and recognises the various options now available to them. 

“Our new approach should better equip advisers to give the right advice so that consumers make well informed decisions.” 

The proposals include:

• replacing the current transfer value analysis requirement (TVA) with a comparison showing the value of the benefits being given up
• introducing a rule to require all advice in this area to be provided as a personal recommendation, which fully reflects the client’s circumstances and provides a recommended course of action
• updating our guidance on assessing suitability when giving a personal recommendation to convert or transfer safeguarded benefits, so that advisers focus on whether a transaction is right for a particular individual
• introducing guidance on the role of a pension transfer specialist

Comment

As financial advisers authorised to offer this specialised area of pension transfer advice, we welcome the changes although to be fair, we already explore comparing the value of benefits being given up and do make all recommendations that fully reflect a client’s circumstances and needs.

We call them ‘hard facts’ i.e. the numbers, funding position and comparisons of options assuming inflation, high and low investment returns etc as well as the ‘soft facts’ i.e. other factors that may affect decisions such as spouses pensions, longevity, other pension income, other options for income, inflation assumptions, government moves to potentially allow trustees to amend pension scheme rules etc.