The rules, which form part of the FCA’s consultation on DB transfers published on July 30, will require firms to demonstrate why a self-invested personal pension (Sipp) is better suited for a pension transfer than a workplace scheme.
This is because the FCA believes that Sipps are not always the best choice for clients as they come with ongoing charges and complicated investment choices.
Alan Chan, director and independent financial adviser at IFS Wealth & Pensions, said the rules meant extra work for advisers.
Mr Chan said: “This doesn’t necessarily mean that advisers are forced to recommend a workplace pension scheme but they must clearly demonstrate that the bells and whistles of a personal pension or a Sipp better meet the client's preferences to investing or achieve their objectives.
“A clear example is where a client wishes to take their tax-free cash immediately while leaving the remainder funds invested, ie, flexi-access drawdown.
“If the workplace pension scheme cannot facilitate this, then you would not use it and can discount this option immediately and begin to look at alternative schemes.”
The regulator has acknowledged the proposals were controversial for both advisers and providers but said it was necessary to protect clients from being advised to transfer into a scheme that is too complex or has unnecessary charges.
James Jones-Tinsley, self invested pensions technical specialist at Barnett Waddingham, said: “It’s interesting that even the FCA acknowledged this proposal will be controversial with both advisers and non-workplace pension scheme providers.
“But their justification reflects a pervasive theme currently running through regulators' consultations at the moment; namely, that pension schemes used for auto-enrolment - particularly master trusts - represent the most cost-effective and well-governed pension solution for the majority of savers, where the need for ongoing advice is unlikely until the point of decumulation is reached.”
But, there will be consequences for both sides, Mr Jones-Tinsley warned.
He said: “This proposal will be more controversial for advisers, as they will have to demonstrate in significantly more detail why a transfer of a pension - particularly a DB pension - is more suitable to, for example, a Sipp rather than to a workplace pension scheme.
“For providers of non-workplace pension schemes, one obvious consequence would be a reduction in new business flows, and income.”
Meanwhile Greg Kingston, group communications director at Curtis Banks, argued that Sipps’ fee structure was better suited to DB transfers which was why Sipps were often chosen when facilitating a transfer.
Mr Kingston said: “The regulator’s focus on workplace schemes is centred primarily around costs as they’re capped at 0.75 per cent.
“The majority of independent Sipps remain fixed fee and therefore can offer better value for the client for higher fund values, which is the majority of advised DB transfer business."
He added: “Ultimately it is about getting the right outcome for the client, and good advisers will already be documenting their decision making on a wide variety of factors, including wrapper chargers and access to the right investments.”
Despite this, some advisers welcomed the proposals as they believe workplace schemes should be considered alongside a Sipp.
Rebecca Aldridge, managing director at Balance Wealth Planning, said: “A workplace scheme should be considered for any pension transfer, or new pension contribution as a matter of course.
“They will tend to be broadly suitable for most people while they are accumulating wealth.”
But she added they weren't always the best option especially when the client wants flexibility with their pension.
She said: “Many workplace pensions just don’t offer the flexibility that clients will need when in drawdown or if they pass away.
“At the accumulation stage this isn’t a big factor because they are putting money in, not taking it out.
“But when they are about to start drawing on their income, most of our clients used phased drawdown to minimise tax, and that is rarely available in a workplace pension.”
amy.austin@ft.com
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