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Pension transfers

Published on 30 April 2018

The FCA tries again to get it right with new rules and a further consultation paper.

The FCA has now produced its revised pension transfer rules following the consultation paper published in June 2017. There are some changes from the initial consultation which appear to result from the FCA’s review of pension transfer files. The FCA has also published a further consultation paper looking, in particular, at issues arising when more than one firm is involved in the pension transfer process.

The original proposals

If a consumer wants to transfer their defined benefit pension and/or convert their safeguarded benefits and the value of those benefits is over £30,000, the consumer must obtain advice on the transfer. The advice on the transfer must at least be “checked” by a pension transfer specialist and the firm providing the pension transfer advice must be authorised to provide that advice. The mandatory requirement for consumers to obtain advice on a pension transfer was introduced in the wake of the pension freedoms in April 2015.

In the FCA’s June 2017 consultation paper, the FCA proposed:

  • Replacing the transfer value analysis with a broader analysis of a customer’s needs and circumstances
  • Introducing the Appropriate Pension Transfer Analysis (APTA) including the “Transfer Value Comparator” (TVC) that requires an estimation of the present monetary value needed today to fund an annuity matching the benefits in the ceding scheme at retirement. This moves away from looking at the critical yield/investment return required on the transferring funds to match the benefits in the ceding scheme at retirement
  • A rule to require that all advice is provided as a personal recommendation fully reflecting the client’s circumstances and providing a recommended course of action
  • Updating the FCA’s guidance on assessing suitability when giving a personal recommendation to convert or transfer safeguarded benefits, including removing the starting assumption that a transfer will be unsuitable
  • Introducing guidance on the role of a pension transfer specialist and what is required of a pension transfer specialist when “checking” pension transfer advice.

The paper also commented that the “outsourcing” of checking and advice functions of pension transfer specialists was already adequately addressed in the current rules. In particular, if the “checking” of the transfer advice was outsourced the adviser giving the overall advice remained responsible for the advice to the client and if the “advice” on the transfer was outsourced both firms had the burden to demonstrate that the advice they provided was suitable.