Assessing the FCA's latest DB transfer moves

Assessing the FCA's latest DB transfer moves

The FCA has issued a new consultation paper on pension transfers – at the same time as providing final rules relating to its previous consultation on the same subject, launched just 11 months ago.

The previous paper asked questions on topics such as qualification requirements for advisers and the responsibilities for advisers working together. But in addition to the areas originally discussed, a number of new issues were raised during the initial consultation process.

As a result, the regulator is now seeking views on topics such as the role and qualifications of pension transfer specialists, how to define a pension transfer, how to deal with triage services if offered, assessments of attitudes to risk, and a mooted requirement to provide suitability reports in the event of a negative recommendation.

In addition, it is also seeking views (but not proposing rule changes at this time) on charging structures associated with advising on pension transfers. So it is worth looking at some of the issues arising from the consultation in more detail.

Specialist qualifications

The FCA is proposing that a pension transfer specialist (PTS) must hold the relevant qualifications for advising on investments before they can advise on or check pension transfer advice. It proposes that existing PTS must acquire the additional qualification by October 2020. There will be no ‘grandfathering’ process involved – the deadline will apply to all.

This is not likely to be a significant issue for most PTS, most of whom are typically highly qualified. Those who do not have the additional qualification have plenty of time to get up to speed. What it does do is continue the theme of full personal recommendations, because PTS will need to ensure they understand the investments fully, even if they were not the ones who originally chose them.

This feeds into the proposed guidance on advisers working together – something that often occurs due to the expertise needed to give pension transfer advice. The FCA makes it clear that it is not possible for one firm to make the transfer recommendation and one firm to give the investment advice, with no interaction between them. It expects both firms to work together to ensure that the advice takes into account factors such as investment advice, the attitude to risk (transfer and investment), and the potential impact of the loss of the safeguarded benefits. This will go against some pension transfer business models, but without this change it would be difficult to fulfil the requirement for a full personal recommendation.

In addition to the investment qualification requirement, the FCA proposes to amend the exam standards to take account of recent developments in the pension landscape. These encompass not just pension freedoms in general but also the mandatory advice requirement, the rules and guidance contained in its latest policy statement, and the changes proposed in the latest consultation. The exam standard will, therefore, cover personal recommendations and advice boundary issues, appropriate pension transfer analysis (APTA) and transfer value comparator (TVC) work, overseas advice, and taxation.