Aegon’s public affairs director is urging the Financial Conduct Authority (FCA) to rule as soon as possible on defined benefit (DB) transfers, as a way to make advisers more comfortable when dealing with client requests.
“Advisers should be able to have much more confidence in FCA rules,” Steve Cameron told FTAdviser.
At the moment, advisers feel that there is a lack of guidance from the regulator in this matter.
DB transfers have been soaring, as savers seek to take advantage of sky-high transfer values and to move their nest eggs into defined contribution schemes in order to access them via the pension freedom rules.
However, many in the industry, across both advisers and providers, are concerned about the suitability of such a high volume of transfers, and liability if clients later complain.
“These professionals are not confident on giving advice on DB transfers, and I understand why they are cautious,” Mr Cameron said.
At the start of the year, the FCA expressed concern about the processes advice firms were using when recommending DB pension transfers.
The regulator published a paper on this matter in June, when it opened a consultation, which will close on 21 September.
A policy statement is expected to be published in the first quarter of 2018.
This means that it will take several months before advisers are told “what the direction of travel is,” said Mr Cameron.
This is not the first time Aegon has pressed the FCA on the issue.
Adrian Grace, chief executive of Aegon UK, has previously expressed concern that advice businesses could be under threat if the regulator fails to clarify the pension transfer rules soon.
Pension freedoms, introduced in 2015, has seen hundreds of thousands of individuals in a defined benefit pension scheme move a defined contribution scheme so they can access their full pension pot in one go, rather than receive a guaranteed income for life as is normal practice for DB schemes.
However, savers have to employ the services of a financial adviser if they have more than £30,000 in their defined benefit pot.
The Financial Conduct Authority is currently carrying out a desk-based study into advice firms doing a “significant” amount of defined benefit transfer business.
Among the concerns the regulator is believed to have is the conflicts of interest involved in the process.
The work is understood to not be a formal review or study but is a piece of supervisory work in which the FCA is looking at advice firms which have increased the number of DB transfers they have been doing.
This work could be one of the reasons why a number of advice firms have found themselves having to stop carrying out pension transfers.
In June the FCA 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 21 June, 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.
According to Simon Torry, chartered financial planner at Essex-based SRC Wealth Management, more guidance is needed from the regulator in this area.
“The FCA needs to come off the fence a little bit. Clients need to take more responsibility [in a DB transfer],” he said.
“Most of the clients I work with come from banks and insurance companies, they understand the risks,” he added.
If investment markets underperform and the clients lose money after a DB transfer, that is not the responsibility of the adviser, he said.
According to Roy Mcloughlin, associate director at London-based Cavendish Ware, “many advisers are wary of people misreading enhanced transfer values as a reason to transfer”.
“Regulators could help more with information to the public on the very important subjects to be analysed before a transfer is considered,” he concluded.
maria.espadinha@ft.com
