The Financial Conduct Authority (FCA) has issued proposals for new guidance on pension transfer advice, i.e. where clients are recommended to move funds out of occupational pension schemes.
The FCA says its consultation paper has been issued in response to “the increased demand for pension transfer advice”, and the fact that “since the introduction of the pension freedoms in April 2015, consumers have more options available to access their pension savings.”
Pension transfer business is undoubtedly a high-risk area, and advisory firms that carry out these transactions must ensure they have rigorous procedures to ensure suitability of advice. All transfer advice must for example be checked by a pension transfer specialist who has the skills and experience to determine whether the advice is suitable, and who holds a specialist pension qualification such as G60 or AF3.
Proposals contained in the regulator’s consultation paper include:
¥ Where the transfer would involve a transfer or conversion of safeguarded benefits, the advice needs to be given in the form of a personal recommendation, and it will not be acceptable for firms merely to provide general guidance. Safeguarded benefits include: defined benefit (final salary) schemes, guaranteed annuity rates, deferred annuity rates, guaranteed basic annuities and guaranteed minimum pensions
¥ A removal of the formal rule saying that advisers must initially assume that any transfer will be unsuitable for their client. However, the paper still says that “it remains our view that keeping safeguarded benefits will be in the best interests of most consumers.”
¥ Expanded rules on how firms should assess suitability of advice. The FCA proposes that an assessment of suitability should encompass: the role safeguarded benefits play in providing the level of income a client expects or needs, whether the investments in the receiving scheme meet the client’s risk profile, and the way in which funds will be accessed by the client following any transfer
¥ A transfer value analysis must include a comparison showing the value of the benefits being given up
The consultation also invites comments on what the appropriate qualification and experience requirements for a pension transfer specialist should be, although no formal new rules are proposed on this issue at this time.
The consultation closes on September 21, so firms wishing to express their views on these proposals must reply to the FCA within the next three months. The FCA says it will then issue its new rules on pension transfers in early 2018.
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 information shown in this article was correct at the time of publication. Articles are not routinely reviewed and as such are not updated. Please be aware the facts, circumstances or legal position may change after publication of the article.