Personal Pension  

FCA eyes transfer value analysis rule change

FCA eyes transfer value analysis rule change

A full review could be launched into the methodology governing transfer value analysis calculations as a result of retirement freedoms undermining the annuity default assumption inherent within the rules, the regulator has revealed.

In a policy statement published this morning finalising rules for advice on transfers for pension scheme members moving from ‘safeguarded’ benefits to exploit new access options, the Financial Conduct Authority reveals it may act on feedback branding current methodology outdated”.

The paper states: “Later this year, as part of our broader review of our Handbook pension rules, we will consider whether there is a need for a full review of our TVA requirements.

“We appreciate that the requirements were established when the only option within a contract-based pension scheme was to purchase an annuity. We are keen to explore the options for reviewing the TVA methodology in light of pension flexibilities and will seek input from stakeholders on this process.”

The finalised rules are largely unchanged from those consulted on in March and confirm the requirement for advice to be taken when moving from defined benefit schemes to a money purchase arrangement.

The rules also cover transfers, or ‘conversions’, between money purchase schemes where ‘safeguarded’ benefits are being surrendered and in most cases require oversight by a fully qualified pension transfer specialist.

Exceptions to this requirement have been granted for those forfeiting a GAR, as the process is seen as less complex. In the final rules, a further exemption is granted to transfers from occupational money purchase pension schemes where there are no guaranteed benefits.

Transfers from personal pension schemes which include a guaranteed minimum pension will still require the full specialist oversight, despite lobbying from a number of respondents.

Elsewhere, transfers where the member is at their normal retirement age and seeking to access, or ‘vest’, their fund are also excluded from the need for specialist advice. The paper states that this includes cases where an annuity is being purchased with safeguarded benefits.

Previously advisers did not need transfer permissions for any transfer where the purpose was to access a pot. Advisers will now always need permissions and in most cases the advice must be overseen by a specialist, unless it is taking place at retirement age.

The FCA clarifies that it may offer permissions with ‘limitations’ for those advisers only seeking to advise on transfer business relating to money purchase schemes with a GAR attached. Those with existing transfer permissions will be ‘grandfathered’ into the new regime.

Opening the paper the FCA outlines a number of areas where it received feedback which was outside the scope of the new rules, including so-called ‘insistent clients’, which has been a touchstone issue repeatedly highlighted by the Personal Finance Society, among others.

The FCA has published a factsheet alongside the new rules, restating its position on such clients and outlining examples of good and bad practice.