The FCA has proposed dropping guidance that suggests advisers should start defined benefit (DB) transfer analysis by assuming a switch would be unsuitable for a client.
In a consultation paper on DB transfers released on June 21, the regulator said it could instead introduce a statement to its Handbook that would describe retaining existing benefits as “likely” to be the correct decision.
“The introduction of the pension freedoms has altered the options available, and for some consumers a transfer may now be suitable when it wasn’t previously,” the watchdog said.
The FCA also plans to replace the transfer value analysis (TVAS) system, suggesting that intermediaries had become too reliant on critical yield calculations when advising on transfers. The new method would consider the receiving scheme, its underlying investments, and the way its benefits would be accessed as part of “an overarching requirement to undertake appropriate analysis”.
In a bid to clamp down on the chances of customers falling victim to fraudulent activity, advisers will now be required to provide pension transfer customers with a recommendation.
Other DB transfer issues to have grown in prominence as the number of enquiries has surged, such as the role played by contingent charging, were not addressed by the paper. The proposals come as the FCA continues to examine pension transfer business. In the highest profile case yet, Intelligent Pensions has agreed with the regulator to halt DB transfer dealings.
“It is disappointing to see another firm voluntarily agreeing to cease a core service of its business where its interpretation of the advice requirement differs from that of the regulator,” said, Martin Tilley, director of technical services at Dentons Pension Management.
“We have seen similar concerns among IFAs who have had their ability to advise fettered by the FCA guidance.”
Former FCA technical specialist Rory Percival said at the Great Pension Transfer debate in Peterborough on June 19 that the regulator could be reviewing the transfer dealings of up to 100 companies.
Mr Tilley acknowledged the regulator’s duty to act in the best interest of consumers, but also highlighted its additional responsibility to provide clear and timely guidance for advisers to follow. He said failure to properly address this area could bring further damage to the industry’s reputation. “For these advisers, having to turn a client away could be damaging not only to that relationship, but the client’s whole attitude towards the advice sector.”
craig.rickman@ft.com
