How to avoid the pitfalls of advising on pension transfers

Keep up to date with the release of FCA consultation papers. These set out current thinking, highlight the latest issues on the FCA’s radar and signpost where there could be changes to the rules further down the line.

Keeping abreast of these will help you to follow best practices even before they become part of the regulations. That is a great way to manage future compliance risks.

Read the resulting policy statements. These are issued to clarify which changes are happening and the deadline(s) for implementation.  

This will ensure you have incorporated any changes to practices in good time, as well as give you time to have your approach checked by your compliance consultants.

For example, if you read policy statement 18/6, it sets out some changes, including to the Transfer Value Analysis (TVAS) calculation which plays a pivotal part of the COBS rules. Changes are planned as early as October 2018.

Additionally, check out The Pensions Regulator and Pensions Advisory Service web pages to see what they are telling consumers.

This will help you respond to any queries from your clients about the information on these sites, and understand the background they have been given before you start your conversations.

Finally, watch out for the outcome of Consultation Paper 18/7, due in the Autumn, for another round of guidance from the FCA and a defined benefit (DB) transfer questionnaire being sent out to firms.

Holistic review

It is critical that you know your client.

As professional advisers, the needs of your clients come first and foremost.

But as life gets more complex, and particularly with pension transfers, it may help to have a few reminders of the things you must take into account.

Always consider the FCA’s starting assumption, which is that  “firms should start by assuming that the transfer is not suitable”.

Get to the bottom of the client’s real intentions for wanting to consider a transfer and whether their needs can be met by other products and services.

Always consider a conversation about transferring a pension as part of a full holistic financial review. Targeted or focused advice is not recommended.

Consider all points in COBS 19.1.6. These cover how you assess suitability and make personal recommendations, including taking into account any safeguarded benefits.

Make sure you fully understand the benefit structures, features and security of the scheme being considered for transfer. This includes whether the scheme is likely to enter the Pension Protection Fund.

You will need to collect up-to-date information from the employer/pension provider, including on any safeguarded benefits.