Defined Benefit  

FCA and Fos clarify pension transfer rules

FCA and Fos clarify pension transfer rules

The Financial Conduct Authority and the Financial Ombudsman Service have warned advisers they must find out whether pension schemes offer partial transfers when advising on defined benefit transfers.

Failing to do so could give the client grounds for a successful complaint, the ombudsman stated. 

Partial transfers allow members to retain a portion of their guaranteed income in retirement, and cash in the rest.

They are popular with financial advisers, who have described them as "fantastic", "extremely beneficial", and a good way of accessing defined benefit cash without taking on all of the risks of a full transfer.

They can also serve to prevent wealthier members from exceeding the lifetime allowance.

As yet partial transfers are only offered by a small number of schemes.

But this is changing, and according to Les Cameron, head of technical at Prudential, this new trend poses real risks to advisers.

"If a client begins to struggle for income and looks to challenge any advice given then it is important that all options have been identified," he said. 

"You don’t want hindsight to throw up an option available that wasn’t considered and has led to client loss."

FTAdviser asked both the Financial Ombudsman Service and the Financial Conduct Authority whether they considered the failure of advisers to check if there was the option of a partial transfer of risk. Both the regulator and ombudsman confirmed they did think advisers who failed to check if this was a possibility could find themselves in trouble.

A Fos spokesperson said: "When looking at a complaint about transferring out of a DB scheme we’ll consider what the consumer’s financial needs and objectives were at the time of the advice. 

"And we’d look at whether an adviser had considered any key features of the product, for example if a partial transfer was possible or not and whether it was suitable for the consumer to give up safeguarded benefits in the circumstances.

"If a consumer thinks the advice to transfer out of a DB pension scheme was not suitable they may complain about the advice received. If they remain unhappy with the financial business’ response they can ask the financial ombudsman service to look into their complaint."

A spokesperson for FCA, meanwhile, said the watchdog did not have explicit rules on DB partial transfers.

However, the spokesman for the City watchdog stressed advisers were required to consider all options available to clients when assessing the suitability of a DB transfer. This included whether partial transfers were available.

Ben Smaje, a chartered financial planner and managing director of Kennedy Black Wealth Management, agreed that failure to inquire about partial transfers could put the adviser at risk.

"It's a little known fact about schemes, and it needs to be part of the due diligence and research that an adviser does when advising on a DB transfer," he said.