The shake up of the pensions landscape, following the introduction of pensions freedoms, has ushered in a number of changes – some with unintended consequences.
The opportunity to access their lump sum from the age of 55 has led numerous people to seek to transfer their DB pension.
However, for all transfer values over £30,000, it is mandatory for people to seek independent advice, if they wish to progress this.
Providing DB transfer advice has subsequently led to some undesired outcomes for both financial advisers and clients, including insistent clients seeking financial redress at a later stage.
It is fair to say that the Financial Conduct Authority (FCA) is clear about its lack of enthusiasm for DB transfers.
Last October, Megan Butler, executive director of Supervision, Wholesale and Specialists at the FCA said: “‘We have said repeatedly that, when advising on DB transfers, advisers should start from the position that a transfer is not suitable.”
The FCA has put a number of checks and balances in place, including the stipulation in its handbook that advice on pensions transfers must be given or checked by a pension specialist.
Pension specialists have until October this year to gain a specific qualification in this area if they do not have it already.
Process and Guidance
The regulator also sets out a specific process for advisers to follow, when a client seeks their advice on a DB transfer.
In summary, the process should start with disclosure (details of the services they offer and the cost).
The adviser also needs to obtain in-depth information on the client’s personal circumstances and risk profile, as well as on their objectives and needs.
Research is also required, including comparison of the DB pension with the proposed alternative, followed by a suitability report, containing findings and recommendations (to be provided whether the recommendation is to go ahead or not).
It should include details of how the adviser arrived at that decision and why they think it is the right thing to do.
The client can also expect information on the importance of ongoing services, including regular meetings and reviews of investments, particularly if the advice is to make the transfer.
There is also guidance available for advisers, in the form of the Personal Finance Society’s ‘Gold Standard’, a voluntary code of good practice for DB transfer advice, based on a set of nine principles.
These include helping clients understand when advice is appropriate and the cost of transferring benefits, as well as ensuring that the advice supports the client’s overall wellbeing, within the context of their stated objectives.
It also emphasises that advisers should ensure that the client understands and accepts all charges.
In addition, the code highlights the importance of transparency with regard to managing conflicts of interest, as well as with regard to advice processes and outcomes.