Regulatory requirements for transfer advice

If an individual who is not a pensions transfer specialist has given advice on a pension transfer then Mr Trenner says a pension transfer specialist must check the advice provided.

According to the FCA rulebook, a pension transfer specialist must have CF30 (customer function) and hold a qualification from:

• G60 or AF3 (CII)

• Pensions paper of Professional Investment Certificate (IFS)

• Fellow/Associate of Pensions Management Institute

• Fellow/Associate of Faculty of Actuaries

Mr Trenner says the FSA heavily discourage direct offer or execution-only in pension transfers and if this is to take place then the firm must make, and retain indefinitely, a clear record that no advice was given.

However Mr Trenner points out permissions are not usually required if the transfer is to coincide with crystallisation of benefits but there must be evidence that the scheme member does intend to take/crystallise the benefits.

The Conduct of Business Sourcebook has detailed requirements which must be followed before a pensions transfer specialist can advise on a transfer, Mr Trenner adds.

The firm has to:

1) compare the benefits which are likely to be paid under the defined benefits scheme with the benefits payable under the personal pension or stakeholder and give the client a copy of this comparison highlighting factors which support or do not support the firm’s advice; and

2) give the client enough information to make an informed decision but also try to make sure that the client understands the comparison and the advice given.

Due diligence and demonstrating the reasons for transfer are absolutely key when looking at pension transfers, Mr Trenner adds.

He says: “It is necessary for the adviser to understand whether any of the ‘cons’ exist and whether there would be a material disadvantage for the client to move their pension.

“Furthermore, it is necessary to understand what options, if any, are available under the existing contract as these cannot be ignored.

“For example, if recommending a transfer on basis of investment flexibility and then using a range of funds that could have been accessed under the current scheme – was there genuine justification for transfer.”

To make sure you meet regulatory requirements, John Lawson, head of policy for pensions and investment at Aviva, says you should document your advice properly, set out fully the financial analysis you have carried out and the reasons why a transfer is recommended.

Caroline Villar, product director for retail pensions at Legal & General, says the adviser must ensure a suitability report is provided to the client, which must clearly state why a transfer is being recommended, making reference to the client particular needs and circumstances.

The FSA published a pension switching suitability assessment template on their website, which provides examples of what should be documented when advising in this area.

http://www.fsa.gov.uk/static/pubs/other/Pension_switching_template.pdf

Ms Villar says if advising on defined benefit schemes, the requirements are more complex with a transfer value analysis report needed.

She says: “This is needed to calculate the critical yield which is the growth rate required to match the benefits in the ceding scheme, provided the assumptions in the report are met. The recommendation must be checked by a pension transfer specialist.”