Under which circumstances is a pension transfer warranted?

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. 

This, like many other changes, is being formalised rather than being new. 

Appropriate Pension Transfer Analysis (APTA)

In the consultation the FCA asked for feedback on its proposals for the APTA and have now set out a framework that is designed to help demonstrate the suitability of a personal recommendation.

It is not just all about the numbers; it is very personal to the client and can include behavioural and non-financial analysis. It should also look to see if there are other ways to meet the client’s objectives, as we know that the transfer is not likely to be the best way in the FCA’s opinion. 

The regulator does not intend to provide detailed rules and guidance on what should be included for each individual because advisers are best placed to decide this. They consider it is for the advisers to decide if a critical yield approach is valid in some circumstances.

The FCA has warned about the use of critical yields where the term to retirement is uncertain or if it is felt that the client may not understand what it means. 

I understand that the FCA believes it is difficult to compare the different types of death benefit available, but surely that is the point.

Critical yields have been a benchmark for good or bad value transfers for years and although they have become less relevant over recent years it may be hard for some to turn away from them. I feel that the majority of clients struggle to understand what they mean, which basically makes them meaningless in the report.

I found it interesting that given one of the biggest changes that came about in the pension freedoms were the changes to the death benefit options in defined contribution (DC) schemes, no changes have been made to the handbook to reflect this. I understand that the FCA believes it is difficult to compare the different types of death benefit available, but surely that is the point.