Aegon has proposed a traffic light system, with red, yellow and green indicators for prospective defined benefit (DB) transfer clients, as a solution for advice firms implementing a triage system.
In its submission to the Financial Conduct Authority (FCA) consultation paper CP18/7, which closed on Friday (25 May), the provider warned the regulator's draft guidance on triage "places 'considerable limitations' on its likely effectiveness".
In March, the FCA said that it was consulting on new guidance on how firms can provide an appropriate triage service that gives factual and generic information without stepping across the advice boundary.
The watchdog said if triage is to be a non-advised service, it should be an educational process so that consumers can decide whether to proceed to regulated advice.
Firms can achieve this by providing generic, balanced information on the advantages and disadvantages of pension transfers, the provider added.
Aegon is calling for a more creative approach to focus on what can, instead of what can’t be done within guidance.
The provider has set out a traffic light system guide to illustrate the concept, and is keen for wider debate on how this might be developed.
The following table sets out some of questions that may help the client decide whether or not he will wish to seek advice on transferring from a defined benefit scheme.
If the individual answers include a number of greens (more likely), then as a rule of thumb, it may be worth exploring further with a financial adviser although this doesn't suggest that they should actually transfer.
If there is one or more red answer (less likely), then the rule of thumb is it may be less worth exploring transferring, although again this doesn’t mean the customer definitely shouldn’t transfer.
Ask yourself… | Answer | Does this make it more or less likely that it is worth seeking advice regarding transferring?
|
Do you have a spouse or partner eligible for your defined benefit pension? | Yes | Neutral |
No | More likely | |
Do you have any medical conditions that may significantly shorten your life expectancy | Yes | More likely |
No | Neutral | |
Do you have more than enough secure regular income to cover your regular outgoings in retirement? | Yes | More likely |
No | Less likely | |
Are you comfortable investing in the stock market? | Yes | More likely |
No | Less likely | |
If you transferred, when you take your benefits are you likely to want a guaranteed income for life (an annuity)? | Yes | Less likely |
No | Neutral | |
Are you particularly attracted to varying your pension income to meet changing needs over time? | Yes | More likely |
No | Neutral | |
Are you particularly keen to pass a significant part to your family on your death (rather than using it up during your lifetime)? | Yes | More likely |
No | Neutral |
According to Steven Cameron, pensions director at Aegon, in medical terms, triage involves "a professional assessing an individual's circumstances and determining next steps and their priority".
He said: "But the triage being proposed for defined benefit transfers excludes any professional assessment and is closer to self-diagnosis through Google.
"We are calling for the FCA to explore what more advisers can offer within guidance to help customers reach an early decision.
"It is positive that the FCA has set out a non-exhaustive list of considerations for advisers and we would like to explore if this could be turned into a standardised traffic lights guide for consumers wondering if it is worth their while seeking advice.
"This could be promoted by advisers, guidance bodies and trustees."
Alan Chan, director and chartered financial planner at London-based IFS Wealth & Pensions, considers Aegon proposal to be a good idea.
He said: "A traffic light system is easy to understand and will get people thinking about which retirement options may be right for them.
"However, this will do nothing to shorten the advice process for defined benefit transfers or reduce costs in this area. The proposed traffic light system is only used to highlight to the member at an early stage whether or not transferring is likely to be a better option for them.
"We also need to be careful with this kind of approach and the FCA has avoided it in the past because it can very quickly become a tick-box exercise that is used as a 'rule of thumb' rather than advice that is specific to the client's personal circumstances."
maria.espadinha@ft.com
