UK’s FCA Proposes Changes to Pension Transfer Advice

New rules focus on moving from defined benefit to defined contribution plans.

The UK’s Financial Conduct Authority (FCA) has released new proposals on advice relating to pension transfers, mainly for moving from defined benefit to defined contribution pension plans.

“Defined benefit pensions, and other safeguarded benefits such as guarantees, are valuable, so most consumers will be best advised to keep them,” said Christopher Woolard, executive director of strategy and competition at the FCA. “However, we recognize that the environment has changed significantly, so we want to ensure that financial advice considers the customer’s circumstances in full and recognizes the various options now available to them.” 

The new rules outline the FCA’s expectations of advisers and pension transfer specialists, and are intended to make sure consumers receive advice that takes into consideration all relevant factors. They build on an FCA alert on advising on pension transfers published in January.

“We are aware that some firms have been advising on pension transfers or switches without considering the assets in which their client’s funds will be invested,” said the FCA in its January alert. “We are concerned that consumers receiving this advice are at risk of transferring into unsuitable investments or – worse – being scammed.”

The FCA is the conduct regulator for 56,000 financial services firms, and financial markets in the UK, as well as the prudential regulator for more than 18,000 of those companies.

The new rules are designed “to reflect the current environment, and the increased demand for pension transfer advice,” said the regulator in a statement. “Since the introduction of the pension freedoms in April 2015, consumers have more options available to access their pension savings. This has combined with more recent changes to the financial environment leading to historically high levels of transfer values.” 

The proposals include:

  • Replacing the current transfer value analysis requirement with a comparison showing the value of the benefits being given up.
  • Introducing a rule requiring all advice on the subject be provided as a personal recommendation, which reflects the client’s circumstances and provides a recommended course of action.
  • Updating FCA’s 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.

“Transferring pension benefits is usually irreversible,” said the FCA. “The merits or otherwise of the transfer may only become apparent years into the future. So, it is particularly important that firms advising on pension transfers ensure that their clients understand fully the implications of a proposed transfer.”

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