Pension Transfers – seeing the wood for the trees – Part 2
This is the second of two blogs addressing the issues raised in the FCA's paper on the changes to the pension transfer regulations.
In this blog we look at the other issues raised during the consultation and the FCA's response.
The FCA's paper interestingly raises four issues identified during the course of the consultation on the pension transfer rules including (1) insistent clients, (2) the basis for the transfer value analysis, (3) duplication of advice for overseas residents and (4) the definition of safeguarded benefits.
The FCA produced a factsheet to address the insistent client issue which many firms have criticised for its lack of clarity in light of issues raised during the consultation. RPC have previously blogged on this factsheet, which seeks to clarify the position for advisers.
The transfer value analysis
The FCA says that it is looking at whether a full review of the transfer value analysis is needed given that it is presently based on a comparison with annuity rates. This comparison may no longer be appropriate following the introduction of the pension freedoms and the expectation that many will look at options other than an annuity on retirement.
Definition of safeguarded benefits
As reported in yesterday's blog, "safeguarded" benefits is unhelpfully defined in the negative as including all benefits that are not money purchase benefits or cash balance arrangements.
Many raised during the consultation the lack of clarity in relation to this definition and the FCA says that it will consider the definition further with the DWP.
For non-UK residents, the pension transfer rules require trustees and managers to check that a scheme member has received advice from an FCA-authorised adviser before transferring safeguarded benefits of more than £30,000.
This means in practice that a non-UK resident often has to seek advice from two advisers – a FCA-authorised adviser on the transfer and a local overseas adviser on the tax regime of the country to which the monies are being transferred.
The FCA is again working with the DWP to consider whether amendments to the rules should be made to ensure that the advice requirement properly operates for non-UK residents.
The number of advisers required
The paper also acknowledges that the FCA significantly underestimated the number of further PTSs required in light of the pension freedoms. It anticipates that based on each piece of advice on a pension transfer taking an adviser 7.5 hours a further 130 PTS will be required at a cost of £1.6m, compared to the initial estimate of £340,000.
The issues raised during the consultation and recognised in the FCA's report clearly show that there is a lot more to look at in the pensions area as the pension freedoms bed in. We anticipate that this will include more for pension transfers with the FCA's paper due on the pension freedoms in the autumn of this year.