Defined Benefit  

FCA told to put pension transfer consultation on hold

FCA told to put pension transfer consultation on hold

Aegon is urging the Financial Conduct Authority to put on hold its current guidance consultation into the way firms calculate redress for unsuitable defined benefit (DB) transfers.

The redress consultation was launched in March, but the FCA has since revealed plans to consult more broadly on DB transfers.

Aegon argued that this broader consultation should take priority with a focus on updating ‘suitability’ to reflect the pension freedoms available within defined contribution (DC) pensions.

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Steven Cameron, pensions director at Aegon, said: “The FCA is consulting on updating redress calculations where advice on DB transfers is found to be unsuitable.

"But the far bigger question is, in a post pension freedoms world, what is suitable advice and what’s not."

Mr Cameron said the surge in demand for DB transfer advice means advisers need urgent regulatory clarity from the FCA to allow them to support clients achieve their objectives in this complex area.

He noted that since the introduction of pension freedoms in April 2015, people have switched from transferring out of DB schemes in the hope of securing a higher retirement income through an annuity, to doing so to access the government’s pension freedoms - which are only available via a DC pension.

“There’s growing acceptance that if the primary objective is flexibility, advice shouldn’t be based solely on the likelihood the transfer value will secure an annuity at scheme pension age above the DB benefit given up," he said.

"Advisers quite rightly need to explore wider objectives and the additional value to the individual offered by pension freedoms, such as choosing when to start taking an income, how to shape income year on year and leaving funds to loved ones. 

“Before updating redress calculations, the FCA needs to clarify when DB transfer advice will be considered unsuitable. If the individual does want to take a guaranteed income from scheme pension age, then redress based on the traditional TVAS approach may be reasonable. But if the individual has made clear they are looking for flexibility, basing redress on annuity replacement costs just doesn’t seem right."

He added his view that the way forward may be two completely different redress calculations.

"We believe the FCA is putting the ‘cart before the horse’ and should put the current guidance consultation on hold until after its forthcoming wider consultation on DB transfer advice.”

Claire Trott, head of pensions strategy at Technical Connection, said there is "clearly a mismatch" with "old school thinking" on DB transfers where the starting point is always that it is unsuitable with the promotion of the advantages of using pension freedoms.

"There needs to be a more joined up approach by all government departments to not only protect the public from unsuitable advice but protect the advisory profession from unfair claims," she said.

"It makes sense to start at the beginning and get the suitability debate sorted before moving onto the issues when the advice hasn’t be deemed suitable or advisers will continue to suffer which will in the end mean clients will struggle to get advice in this area full stop."