Defined Benefit  

FCA reveals expectations for pension transfer advice

FCA reveals expectations for pension transfer advice

Maggie Craig, special adviser for the Financial Conduct Authority, has revealed exactly what the watchdog expects intermediaries to do when considering a pension transfer.

Speaking the day after the FCA revealed in more than half of the defined benefit pension (DB) transfers the regulator looked at where the recommendation was to move the retirement pot was unsuitable or unclear, Ms Craig said some transfers advice has simply not been appropriate and that needs to change.

In a keynote speech at FTAdviser’s Unpackaging Pensions event, Ms Craig said generic advice in relation to pension transfers was simply not good enough and she detailed exactly what the regulator expected in this area.

She said: “Generic advice is not enough in this situation. Advisers need to consider the specific funds and charges attached to the vehicle to which the individual wants to transfer.

“We believe our stance should be [starting pension transfer advice] from a broadly neutral stance and then the onus is on the advisers to prove why transferring is the best scenario.”

Speaking two weeks after the consultation period closed on the FCA’s proposed new rules for defined benefit pension transfers, Ms Craig said advisers need to consider income need adding, “I am sorry if that sounds like teaching my grandmother how to suck eggs”.

Pre-empting what the policy statement on defined benefit pension transfer advice, set to be published in early 2018, will contain Ms Craig said advisers should check with the client can they afford loss, do they have other sources of income and what giving up guaranteed income would mean.

She said advisers need to consider the specific scheme where the money is going and added, “I was surprised to see this was not the case” from the FCA’s findings on defined benefit transfer advice.

Ms Craig said they also need to think about how the funds will be accessed – whether as regular income or taken ad hoc.

Ms Craig said the adviser must also explore other ways of achieving the client objective – such as could you set up a life policy to provide more cover in the event of death and therefore not give up a defined benefit pension.

She also added advisers should consider family circumstances as part of this – such as the pension arrangements of the individual’s partner.

Ms Craig said: “All these things are inter-linked.

“I am not telling you how to do your job. What I am giving you is guidance on the sort of suitability factors that you need to take account of.

“We are restating our stance on pension transfers in response to the world post pension freedoms.

“We are not trying to stop transfers or open the floodgate we are trying to give an appropriate way forward.”

David Penney, Chartered financial planner at Penney, Ruddy & Winter, said what Ms Craig’s comments made clear is it would be foolish to state the reason to transfer out of a defined benefit pension scheme was for tax.