Defined Benefit  

FCA scraps plans for 'neutral' pension transfer stance

FCA scraps plans for 'neutral' pension transfer stance

The Financial Conduct Authority has retreated from plans to change its assumption that defined benefit transfers are usually unsuitable.

The regulator had proposed moving to a more "neutral" starting assumption that, for most people, retaining safeguarded benefits was likely be in their best interests.

But following the "significant evidence" of unsuitable advice which the FCA has found in recent months, including in relation to the British Steel Pension Scheme, the regulator has concluded it would no longer be appropriate to make this change.

Earlier this year the FCA said it had contacted 109 firms in its investigation on the British Steel Pension Scheme, where there were widespread concerns about steelworkers being at risk falling victims to scams.

Following FCA intervention, eight firms decided to stop providing advice on pension transfers.

It made this announcement in its policy statement on advising on pension transfers.

The FCA also said that if advisers started from the basis that a transfer should not go ahead it would help counter the incentive to give unsuitable advice created by contingent charging.

Despite changing its mind on this issue, the FCA said there was broad agreement for its move to a neutral position across the industry.

The FCA also said it would proceed with its proposal to require that all advice on the transfer and conversion of safeguarded benefits should include a personal recommendation.

It has also said it will go ahead with its proposed new rules for pension transfer value analysis.

Under the new rules, advisers will have to undertake an "appropriate pension transfer analysis" (Apta), personalised to each customer's needs and objectives.

Responding to concerns about the level of detail required for an Apta, the FCA said: "We recognise that there is a balance needed on the level of detail to include when providing an appropriate framework for the Apta.

"We consider that the rules we consulted on provide an appropriate level of direction but do not limit the adviser’s flexibility to complete the analysis in a way which fits a client’s individual circumstances.

"In our view, an effective Apta should help to demonstrate the suitability of the personal recommendation."

The FCA said it does not intend to provide detailed rules and guidance on the relevant elements to include for each individual and that it is for firms to decide whether a critical yield approach remains valid in some circumstances.

It will also introduce its requirements for a "transfer value comparator" (TVC) to be included within the Apta which will replace the existing transfer value analysis.

The TVC would show, in graphical form, the cash equivalent transfer value offered by the DB scheme and the estimated value needed to replace the client's DB income in a defined contribution environment, assuming the investment returns are consistent with the client's attitude to risk.

The FCA said: "We do not consider that the TVC should be personalised. We expect firms to take account of personal circumstances when preparing the Apta.