The Financial Conduct Authority (FCA) has finally published new rules for pension transfer advice.
In a 58-page policy statement published today (4 October) the new rules set out how advice should be provided to consumers on pension transfers where consumers are considering giving up safeguarded benefits, primarily for transfers from defined benefit (DB) to defined contribution pension schemes.
The paper also clarifies that this is far from the end of the FCA’s tinkering with the rules surrounding pension transfer advice.
Here are the five key things you need to know about the FCA’s latest pension transfers rules.
1) More testing times ahead
Pension transfer specialists have until 1 October 2020 to obtain a level four qualification for providing advice on investments if they want to continue to offer their services.
While a pension transfer specialist may not always be giving the investment advice, the FCA stated they do need to be able to identify whether, in the context of overall suitable pension transfer advice, a proposed scheme and investment is consistent with a client’s needs.
Hopes that the FCA would allow gap-filling for those pension transfer specialists who may have passed the relevant exams some years ago were dashed, with the regulator stating everyone would have to pass the level four exams to continue to sign-off transfers from late 2020 onwards.
But an adviser who does not meet the pension transfer specialist investment qualification requirements will still be able to provide pension transfer advice, according to the FCA, as long as their advice is checked by a transfer specialist before the client is given a suitability report.
2) Changes to advice process requirements
When advising on a pension transfer, the FCA stated the advice must take account of the proposed destination of the transfer funds.
This includes both the proposed scheme and the proposed investments in that scheme.
According to the regulator the rules do not prevent two separate advisers providing the pension transfer advice and a recommendation on the proposed receiving scheme and its investments.
However, the FCA expects the two advisers to work with the same information about the client and have in place robust processes to ensure this happens.
The FCA stated both parties should work together to: collect necessary information, to inform both the pension transfer advice and the associated investment advice and undertake risk profiling, which assesses attitude to transfer risk and investment risk.
The regulator stated the two advisers should recognise the investment advice should consider the impact of the loss of any safeguarded benefits on the client’s ability to take on investment risk.
3) Handling insistent clients and explaining risk
Whether the advice is to stick with a scheme or transfer out, an adviser must now produce a suitability report.
According to the FCA the report provides the adviser with a record which should help them if there is a future dispute but it does not change adviser liability; an adviser is always liable for the recommendations provided.