Defined Benefit 

How to advise clients on DB transfers

  • Understand what the FCA has issued on pension transfer advice and who is eligible to give advice.
  • Learn what to do with self investors and the distinction between the two risk types.
  • Grasp what there is to know about TVAS, TVC and Apta, and charging for advice.
CPD
Approx.30min
How to advise clients on DB transfers

Defined Benefit (DB) transfers have given the Financial Conduct Authority (FCA) much to think about.

In June 2017 the FCA published a consultation, CP17/6, on proposed rule changes for the giving of pension transfer advice, where safeguarded benefits in a pension scheme are given up.

In light of the pension freedoms, which were introduced in 2015, the regulator had considered changing its default stance that, in its view, a transfer of safeguarded benefits is unlikely to be suitable (COBS 19.1.6G).

2017 saw record numbers of transfers, following the introduction of flexible access pension freedoms, and low gilt yields saw the cash equivalent transfer values (CETVs) spiral. Following further suitability reviews conducted by the FCA, it decided to reiterate its stance of a presumption of unsuitability.

In March 2018 the FCA set out proposals on how pension transfer advice could be improved for consumers and CP18/7 sought views on this.

In PS18/20, published in October this year, it has confirmed that most of the proposals will be adopted as the new rules for the giving of pension transfer advice, where safeguarded benefits are given up. These will apply from October 1 2020, except where stated.

Eligibility to give advice - two advisers

A pension transfer specialist (PTS) will need to give the advice or be responsible for the advice with another investment adviser. The FCA considered banning the two adviser model but decided, in the interest of availability of advice, this should continue to be allowed.

The PTS must, however, hold investment qualifications equivalent to Level 4 and must take responsibility for the investment strategy proposed post transfer.

It will not be permitted for the PTS to simply consider the pensions technical aspects of the transfer, leaving the non-PTS or the client to determine the investment strategy. Those who do not already hold a Level 4 investment qualification must achieve this as soon as possible and by no later than October 2020.

Investment advisers who are not PTS qualified will be allowed to advise on pension transfers alongside the PTS. The FCA acknowledged that a non-specialist could provide a helpful understanding of the client’s circumstances and experience.

The PTS will, however, also need to demonstrate thorough knowledge of the client before making a recommendation. The PTS must take responsibility for the advice and this must be made clear to the consumer. 

Where the PTS and the other adviser do not agree on the investment strategy, it cannot be recommended.

The qualifications needed for a PTS are set out in Appendix 21 of the policy statement. This will need to be supplemented by appropriate CPD and the minimum requirements for this will be published later.

Self investors

IFAs active in giving transfer advice will have encountered consumers who have already chosen their own investment strategy and simply require the adviser to endorse the transfer.

PS18/20 makes it clear that this will not be allowed. The self investor must give the adviser full details of the proposed investment.

CPD
Approx.30min
  1. What year saw record numbers of DB transfers?

  2. The FCA considered doing what with the two adviser model?

  3. Aspects of transfer risk should include several things, according to the author. But which one of the below is not in the list?

  4. Some firms have since ceased to offer triage, awaiting further clarification from the regulator. True or false?

  5. When resolving short-term financial needs, consumers should be discouraged from seeing their pension assets as what?

  6. Feedback on the effect of contingent charging was split, with a small majority of respondents in favour of doing what?

Nearly There…

You have successfully answered all the questions correctly, well done!

You should now know…

  • Understand what the FCA has issued on pension transfer advice and who is eligible to give advice.
  • Learn what to do with self investors and the distinction between the two risk types.
  • Grasp what there is to know about TVAS, TVC and Apta, and charging for advice.

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