Rules published today (4 March) by the Financial Conduct Authority ahead of the new pension freedoms will mean all transfers from final salary or ‘guaranteed’ pension schemes fall under regulated advice rules and most will require oversight by a qualified specialist.
However, despite calls from senior industry figures, the regulator has not applied the full extent of the new rules to transfers from schemes with guaranteed annuity rates.
Guaranteed annuity rates are excluded from the provision requiring at a minimum sign-off on a transfer by a qualified ‘pension transfer specialist’, as the FCA cites concerns there is not sufficient capacity among qualified advisers for it and it would be too costly for consumers.
Royal London previously warned that people are looking to ditch their guaranteed rates for cash post-April and that GAR transfers should be treated the same as moves from defined benefit schemes.
The FCA confirmed that consumers will have to take advice when transferring out of a DB scheme, unless the value is less than £30,000, in line with the rules set out by the Treasury.
Under current rules the advice must be overseen by a specialist except where benefits are being crystallised, or where the transfer is to occupational DC scheme which are regulated by the Pensions Regulator.
In line with the “spirit of the rules” as they are set out in legislation, all transfers will now come under the scope of the FCA and the specialist requirement is extended even where the transfer is to take benefits immediately.
While those with a guaranteed rate do not need sign-off from a pension transfer specialist, they will still need to take advice. All transfer advice will require a transfer value analysis to be undertaken.
The paper states: “While a pension transfer specialist may be better placed to model the value of the GAR, we must also take into account the additional cost that a more in-depth analysis may require.
“Moreover, requiring a pension transfer specialist for transactions involving GARs may add to any transitional capacity issues in the industry for the provision of advice in respect of safeguarded benefits.”
The new rules also apply to ‘conversions’, where someone is transferring their guaranteed benefits to flexible benefits in the same scheme. The FCA said this is rare, but will be more prevalent when so-called ‘defined ambition’ DB-DC hybrid schemes are launched.
The regulator said it also considered excluding transfers from occupational DC schemes to personal pensions from its rules from April, but that it believes there is still value in ensuring full oversight by a specialist.
Christopher Woolard, director of strategy and competition at the FCA, said: “In many cases transferring from DB to DC may not be in the member’s best interests and ensuring independent advice is taken is an important protection.”
The FCA wants to hear responses by 15 April 2015.
donia.o’loughlin@ft.com
