The Financial Conduct Authority (FCA), the UK’s financial watchdog, has published new proposals on advice relating to defined benefittransfers.
Overhaul ofTransfer Rules
In the last week, the FCA has outlined a series of proposals that will overhaul the pension transfer rules. This comes on the back of a series of moves, where the UK financial service regulator has seen a number of organisations cease pension transfer business in the UK. The new rules come with the support of a number of international transfer specialist companies.
The new FCA proposals are aimed to reflect the current environment of increased demand for pension transfer advice.
More options for consumers force new consumer focussed proposals
The introduction of pension freedoms in April 2015 has meant that consumers have more options available to access their pension savings than ever before. This has combined with more recent changes to the financial environment, leading to historic high levels for pension transfer values.
The new rules outline the FCA’s “expectations of advisers” and pension transfer specialists to ensure that consumers receive advice which considers all relevant factors.
Building on an FCA alert on advising on pension transfers published in January, the FCA believes that the new advice will provide further protection, where consumers have safeguarded benefits, primarily for transfers from defined benefit to defined contribution pension schemes. It said, in a statement announcing the changes, that its proposals aim to “reflect the current environment and the increased demand for pension transfer advice”.
Proposed Changes to Transfer Advice – making sure consumers make the right decisions
The most important proposed change is that transfer advice is now to be provided as a personal recommendation. This replaces the current transfer value analysis with a comparison that will show the value of any benefits that are being given up.
As a whole, the new transfer advice proposals will ensure that advice fully takes account of an individual’s circumstances. This is designed to make sure that consumers make the right decision for them.
Speaking on Twitter, formerMinister Steve Webb said this “softens the line on whether DB to DC transfers are a bad idea”. He added that advisers “will no longer have to ‘assume’ that a transfer is unsuitable”.
FCA Executive Director statement
Christopher Woolard, the executive director of strategy and competition at the FCA made the following statement:
“Defined benefit, and other safeguarded benefits such as guarantees, are valuable so most consumers will be best advised to keep them. However, we recognise that the environment has changed significantly, so we want to ensure that financial advice considers the customer’s circumstances in full and recognises the various options now available to them. Our new approach should better equip advisers to give the right advice so that consumers make well informed decisions.”
New FCA Proposals Include:
- Replacing current transfer value analysis requirement (TVA) with comparison showing value of benefits being given up
- Introduction of rule requiring all advice in this area to be provided as personal recommendation – which fully reflects the client’s circumstances and provides a recommended course of action
- Updating FCA guidance on assessing suitability when giving a personal recommendation to convert or transfer safeguarded benefits – so that advisers focus on whether a transaction is right for a particular individual
- Introducing guidance on the role of a pension transfer specialist
Welcomed by industry and consumers alike
The new proposals have been almost unanimously welcomed by the financial industry and consumer groups. Philip Brown, Head of Policy at LV=, commented:
“The regulator’s proposed changes to pension transfer advice are welcome news for people approaching Financial Reporter. Since 2015, there has been a stark rise in the number of people wanting to transfer out of their defined benefit scheme to take advantage of the Freedom and Choice reforms. Therefore it’s vital there are strong safeguards in place to protect people from making choices without first understanding all the risks. We wholeheartedly agree advice on transfers should be a personal recommendation and strongly support changing how transfer values are presented. These changes should mean people aren’t unduly influenced into giving up valuable benefits and ensure they can have a safe and secure retirement.”
Timescale issues …
However, some have argued that the timeline for changes needs updating to speed up the proposals. Steven Cameron, pensions director at Aegon, is quoted as saying: “the consultation is definitely heading in the right direction” and “I’m particularly pleased to see a focus on the pension freedoms and how that has changed considerations”.
But added that the fact that the FCA will not publish its rules in a policy statement until early 2018 “does alarm me! The demand for advice is there right now. It’s good that the FCA is opening up the debate and is open to updating its regulatory requirements, but what does that mean for those who are seeking advice now and for those who are trying to deliver advice now?”
Many advisors, like those at Haven will take on board the broad thrust of the recommendations immediately so that they continue to offer clients the best possible advice.
For more information on Final Salary Pension Transfers and for advice on having more flexible access to your money, talk to one of our specialist advisors.