Defined Benefit  

Under which circumstances is a pension transfer warranted?

  • To get up to speed with the FCA's policy statement on DB transfers
  • To learn some of the key points now required on DB transfers
  • To learn about APTAs and TVCs
Under which circumstances is a pension transfer warranted?

The FCA has published its much awaited Policy Statement PS18/6. The statement includes the feedback on CP17/16 as well as final rules and guidance on advising on pension transfers. 

 The document is noteworthy for a number of reasons, but missing are some aspects that are currently being consulted on in CP18/7 Improving the Quality of Pension Transfer Advice.

The majority of the new rules came into force on 1 April 2018, with those relating to transfer value comparator (TVC) and appropriate pension transfer analysis (APTA) to be applicable from 1 October 2018. The final changes which relate to assumptions used for revaluating benefits will come into force on 6 April 2019. Those issues that have been pushed into the new consultation paper include more discussions about pension transfer specialist qualifications, negative recommendation suitability reports, and triage services as well as other proposed changes to indexation assumptions. One area that is covered as a discussion in CP18/7, rather than as suggested changes, is in regards to charges and I will touch on this later.  

Assessing suitability

I am not sure how I feel about the fact that the FCA has decided not to proceed with the proposed change to the “starting assumption” for advice, which will remain that all transfers are unsuitable.

The FCA explains that it has seen a significant proportion of unsuitable advice and so it does not see that now is an appropriate time to change this. I understand its reasoning for this but I am unsure if it changes anything. In my opinion all advice should be rounded and well thought through so there should be no initial assumptions made.

The whole purpose of the advice is to establish what the best thing for the client is and therefore if the advice is to transfer, the starting assumption is irrelevant. If the advice is to remain a member of the scheme, then again a starting assumption is irrelevant. I guess it is useful to use this in the explanation to a client.

There were other common sense amendments, such as a change to the guidance on suitability that confirms a firm can only make a recommendation if all the information required can be obtained and that other ways of meeting the client’s objectives are considered. I cannot believe that good quality advisers would even consider making a recommendation with half the story but it is good to spell these things out to avoid any doubt. 

Some additional changes with regards to the expectation of the role of a pension transfer specialist were included and remain unchanged from the proposals. These include a requirement for a checking pension transfer specialist to:

  • Check the entirety of the advice process, not just the numerical analysis, and consider whether the advice is sufficiently complete;
  • Confirm that the personal recommendation is suitable; and 
  • Inform the firm in writing that they agree with the advice, including any recommendation, before the report is given to the client.

None of this will be an issue for the majority of pension transfer specialists because if they are putting their name to the advice they will want to understand the whole case and the full reasons for suitability. 


Questions appear on the last page of this article.