The Financial Conduct Authority has confirmed to FTAdviser that it is “considering” its rules and guidance on pension transfers in light of the new pension flexibilities first announced at this year’s Budget.
A spokesperson for the FCA said: “The FCA is considering our rules and guidance on pension transfers, in light of the new pension flexibilities. However, we have not published any update on the FSA factsheet on pension transfers.”
Chancellor George Osborne changed the landscape of the at-retirement market earlier this year by stripping away all caps and limits on drawdown. From April, people will have free access to their money at only marginal tax rates - and there will no longer be a 55 per cent tax charge on death.
At present, rules surrounding transfers mean advisers must hold a specialist qualification to process switches, unless the client is going to crystallise their fund and start taking benefits immediately.
The old name for this qualification was G60 under the Chartered Institute of Insurance, the new qualification is called AF3.
The FCA spokesperson explained: “We require that an adviser has the pension transfer qualification to advise on pension transfers, so any recommendation to transfer has to be made or checked by an appropriately qualified advisor.
“However, if the purpose of the transfer is to “crystallise” benefits, i.e. to start taking benefits immediately, then we don’t currently require the adviser to have the pension transfer qualification, nor the firm to have the pension transfer permission. This is as set out in a 2011 FSA factsheet.”
Pensions experts told FTAdviser that they expected the review to result in an intensification of the current rules, meaning advisers would have to hold the relevant permissions and qualification for all pension transfers.
Bruce Moss, strategy director at eValue, said that drawdown is a very niche product which not many advisers today are able to advise on and therefore if rules are revised this may leave clients unable to get the advice they need.
“Income drawdown is a minority, it’s a niche product... with effect from April this year it is going to be much more prevalent, meaning many advisers are not qualified or competent to advise on it.
“The FCA’s revision will leave very little time for adviser training; we don’t know when the FCA is going to revise the rules but it is very possible that they may... there will be potentially very few advisers able to advise on drawdown.”
Martin Tilley, director of technical services at Dentons, said that if the rule was to change in this way there might be a rush of advisers between now and April 2015 conducting transfers from DB occupational schemes to personal pensions ahead of the revision coming into effect.
“From an advisers point of view there might be a rush between now and April if advisers don’t have the qualification, or they might need to go and get it.”
Adrian Walker, retirement planning manager at Old Mutual Wealth, agreed that it was likely rules would be toughened, but disagreed that there would be an uptick in adviser transfer activity as a result of possible regulatory changes.
Mr Walker said: “I don’t expect to see great increase in drawdown business pre April 2015 if FCA revises guidance principles and transfer permission levels.
“Where there may be an increased demand, will be from clients who are intending to take significant amounts of their tax free cash savings from their pension funds in 2015.
“Advisers are not going to put themselves in a position of trying to push stuff through that’s not appropriate for clients. The question will be evaluating their individual needs. It will be individual circumstances that dictate whether there will be more DB transfers.”
Mr Walker said that he had seen a significant increased demand for DB transfer analysis at Old Mutual Wealth since the pension reform announcements, but that he did not believe that would mean there would be a real significant increase in DB activity itself.
“Advisers are taking the view that [they] need to do an overall health check [as a result of the new freedoms] and can’t ignore the fact that includes [in some cases] DB schemes.”
