Defined Benefit  

FCA changes pension transfer advice rules

FCA changes pension transfer advice rules

The Financial Conduct Authority (FCA) today (21 June) published new proposals on advice relating to pension transfers where consumers have safeguarded benefits.

The proposed changes include requiring transfer advice to be provided as a personal recommendation, and replacing the current transfer value analysis with a comparison to show the value of the benefits being given up.

The regulator also revealed it plans to update our guidance on assessing suitability when giving a personal recommendation to convert or transfer safeguarded benefits, so that advisers focus on whether a transaction is right for a particular individual.

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Guidance on the role of a pension transfer specialist is also set to be issued.

Since the introduction of the pension freedoms in April 2015, consumers have more options available to access their pension savings. 

This has combined with more recent changes to the financial environment leading to historically high levels of transfer values.

The new rules outline the FCA’s expectations of advisers and pension transfer specialists to ensure that consumers receive advice which considers all relevant factors and build on an FCA alert on advising on pension transfers published back in January.

Christopher Woolard, executive director of strategy and competition at the FCA, said: “Defined Benefit pensions, and other safeguarded benefits such as guarantees, are valuable so most consumers will be best advised to keep them. 

“However, we recognise that the environment has changed significantly, so we want to ensure that financial advice considers the customer’s circumstances in full and recognises the various options now available to them.

“Our new approach should better equip advisers to give the right advice so that consumers make well informed decisions.”

Former staff at the City watchdog have issued many warnings about defined benefit transfers.

This week, Rory Percival, former technical specialist at the FCA, told a conference that advisers who carry out DB transfer business would need to be "whiter than white", after the FCA confirmed it was carrying out a study into advice on DB transfers.

Earlier this year, a former Financial Services Authority employee told FTAdviser that regulatory action on DB transfers should be expected if the trend to transfer continues at such a pace, without real and appropriate need for them.

David Penney, now a chartered financial planner at London-based Penney, Ruddy and Winter, warned the FCA was concerned about the high levels of transfer requests post-pensions freedoms.

Mr Penney had previously worked at the FCA's predecessor, the Financial Services Authority (FSA), in 1999. At that point in time the regulator was busy dealing with the fallout from the 1994 pensions review, and Mr Penney said he feared a repeat of that mis-selling crisis.

He commented: "I think history is going to repeat itself. Based on my past experience at the FSA, I am convinced there will be a new review into the current spate of defined benefit (DB) transfers being carried out post-pension freedoms."