The Financial Conduct Authority (FCA) has published new rules on pension transfer advice and is seeking views on additional changes, including adviser charging structures. The new rules and areas for discussion aim to improve the quality of pension transfer advice to help consumers make informed decisions for their individual circumstances.
In June 2017, the FCA proposed changes to the rules on advice on transfers from safeguarded benefit schemes, mainly for transfers from defined benefit (DB) to defined contribution pension schemes. Following consultation, the FCA has published final rules to ensure transfer advice considers relevant factors.
The new rules include requiring transfer advice to be provided as a personal recommendation that takes account of a consumer’s individual circumstances. They also replace the current transfer value analysis with a requirement to undertake a personalised analysis of the consumer’s options and a comparison to show the value of the benefits being given up.
Following on from this work, the FCA has also published a consultation paper proposing further changes to its rules and guidance. This includes requiring advisers undertaking pension transfer advice to have the same qualifications as investment advisers. The FCA is also seeking views on whether it should intervene in relation to charging structures given the difficulty in managing the conflicts of interest that exist when providing transfer advice. This could include a ban on contingent charging, which is when a fee for advice is only paid for when a transfer goes ahead. This is a complex area, where any action taken may have an impact on access to advice.
The FCA has decided to maintain the position at this stage that an adviser should start from the assumption that a DB pension transfer will be unsuitable. This is to reflect the high proportion of unsuitable advice seen in supervisory work and need for further consideration of how transfer advice should be paid for. It should be noted that the existing guidance on the starting assumption does not, however, prevent an adviser from recommending a transfer where this is considered suitable for the consumer.
Christopher Woolard, FCA’s Executive Director of Strategy and Competition said: ‘Defined benefit pensions are valuable so most people will be best advised to keep them. However, where people are considering a transfer, it is vital that they get good advice to enable them to make an informed decision.
‘We are also looking at whether further changes are needed to improve the quality of advice in this area. In particular, we recognise that there is an inherent conflict of interest when advisers use a contingent charging model so we are asking for views on whether we should ban contingent fees for pension transfer advice. Defined benefit pension transfer advice continues to be a key area of focus for the FCA.’