Here are the five key things you need to know about the changes the FCA plans to make to how you should advise on pension transfers.
1) Most people better off staying put
After the widespread mis-selling of pension transfers in the late 1980s and early 1990s, which led to the pension review, regulators introduced guidance that all advice on pension transfers should start from the assumption that a transfer is unsuitable.
Despite pension freedoms the regulator’s new rules are set to state “most consumers will be best advised to keep” their defined benefit pensions.
Since the introduction of the pension freedoms in April 2015, consumers have more options available to access their pension savings.
Previously, pension savings could only be used to provide an income in retirement (through an annuity or drawdown).
Pension savings can now be accessed as income or cash. DB pensions must be transferred to a defined contribution (DC) scheme to access the savings other than through the scheme pension.
This has combined with more recent changes to the financial environment leading to historically high levels of transfer values.
2) Conversion and transfer of safeguarded benefits
The FCA intends to add a requirement that advice on conversion or transfer of safeguarded pension benefits must now include “a personal recommendation”.
The regulator stated if advice does not include a personal recommendation “it won’t provide appropriate protection for consumers.”
The watchdog stated: “In view of the complexities when considering a conversion or transfer of safeguarded benefits we think that, for advice to be meaningful, it is important it looks at the consumer’s individual circumstances and provides a specific recommendation.
“The merits of transferring or converting safeguarded benefits are highly dependent on an individual’s personal circumstances.
“To make informed decisions, consumers need to understand the specific details of their safeguarded benefits, make an assessment of the value of this benefit for their specific circumstances and compare this to the value of alternative options.”
3) How advisers must assess suitability
The FCA proposes to remove the existing guidance that an adviser should start from the assumption that a transfer will be unsuitable.
This will be replaced with a statement in the Handbook that, for most people, retaining safeguarded benefits will likely be in their best interests and there will be guidance that advisers should have regard to this.
This will not require an assumption to be made by an adviser, according to the watchdog.