The FCA has finally bitten the bullet and tackled the complexity of issues surrounding defined benefit pension transfers.
Last week it published its paper CP17/16: Advising on Pension Transfers, and it has turned out to be somewhat radical.
In its consultation, the City regulator no longer requires advisers to automatically assume that transferring to a DB scheme is a bad move, and instead asks advisers to start from a "neutral position".
The paper states: "The introduction of pension freedoms has altered the options available and for some consumers a transfer may now be suitable when it wasn’t previously".
The reason this initial assumption was put in place was because of the pensions mis-selling saga of the late 1980s, when – shock horror – people were being told that DB schemes were poor value, and they should put their money into a private scheme instead.
In the decades since, but before pension freedoms, we looked in horror at that suggestion when it became apparent how unpredictable defined contribution schemes were. Now the situation has turned full circle and a number of factors have made DB transfers fashionable once again.
Figures from Mercer, the professional services group, suggest £50bn has been taken out of company pension schemes over the last two years.
Any fears the new rules will result in a future mis-selling scandal were addressed. For example, advisers always need to offer a recommendation, and there are detailed proposals of how to make the suitable client recommendation, based on what other sources of funds the client has, and whether what the client is trying to achieve can be met through other means.
To assess the FCA's stance on this, one only has to look at its approach to Intelligent Pensions, one of the leaders in the field, kept busy with many requests for DB transfers, which was stopped in its tracks earlier this month. Many see Intelligent Pensions as one of the more sensible companies dealing with this process, so if they were not getting it right, then the FCA has raised a serious red flag.
Too many bad memories persist of the original mis-selling scandal relating to DB transfers. Let's hope the FCA have got the balance right this time.
