The Department for Work & Pensions has provided further guidance for providers on which pension benefits with a guarantee are safeguarded for the purpose of the advice requirement.
A new factsheet, published late last week, is intended to help them determine whether certain types of pension benefits which contain a promise, including those with a guaranteed annuity rate (GAR), are safeguarded benefits for the purposes of the new advice requirement.
It also details when the exception to the requirement to take independent advice for those with safeguarded benefits worth £30,000 or less applies.
These rules were brought in last April, along with the at-retirement reforms, to ensure that individuals considering cashing out their safeguarded benefits are fully aware of what they would be giving up.
Section 48 of the Pension Schemes Act 2015 made sure scheme members take “appropriate independent advice from an FCA-authorised adviser” before:
• converting safeguarded benefits into flexible benefits (or in the case of benefits which are both safeguarded and flexible, into different flexible benefits);
• using a transfer payment in respect of safeguarded benefits to acquire flexible benefits under another scheme;
• being paid an uncrystallised funds pension lump sum (UFPLS) in respect of their safeguarded benefits.
However, the DWP has clarified the following situations do not constitute transfers or conversions so the advice requirement would not apply:
• payment of a pension commencement lump sum in respect of safeguarded benefits (that is, taking one-off tax free cash at the same time as starting to receive a pension);
• purchase of an annuity from another provider, rather than taking up a GAR offered by the member’s existing provider.
Between 23 November 2015 and 15 January 2016, the government held a call for evidence on the valuation process for pensions with a GAR for the purposes of the advice requirement.
This was held in response to concerns that pension providers and pension scheme members were finding it difficult to understand when members were required to take advice before transferring such benefits, or accessing them flexibly.
The majority of consultation respondents were in favour of a change to the current valuation method, so the government is now considering how best to simplify the current valuation process for the purposes of the advice requirement, with further consultation on draft regulations due later in 2016.
Mike O’Brien, managing director of TenetConnect and TenetSelect, said the clarification is useful “and we will be updating policies for our membership to reflect it, but we do not believe it will have a material effect on insistent clients, other than to reduce the volume of them, as they no longer need to take advice in some circumstances”.
peter.walker@ft.com
