The Financial Conduct Authority’s new proposals on pension transfers have been widely welcomed across the industry, but concerns around the 2018 implementation of the final rules remain.
Digging deeper into consumers’ objectives is at the heart of the FCA’s new consultation, which closes on September 21 2017.
It’s good that the FCA is opening up the debate... but what does that mean for those who are seeking advice now?
Steven Cameron, Aegon
The document aims “to reflect the current environment and the increased demand for pension transfer advice” since the introduction of freedom and choice in April 2015.
New rules proposed
It seeks views on proposals for advice relating to pension transfers where consumers have safeguarded benefits, mainly for transfer from defined benefit to defined contribution schemes.
One of the suggestions involves replacing the current transfer value analysis requirement. The document says that the new requirement would “undertake appropriate analysis of the client’s options, including a prescribed comparator indicating the value of the benefits being given up”.
The regulator has also proposed to introduce a rule to require all advice on the conversion or transfer of safeguarded benefits to result in a personal recommendation.
There are also proposals to update guidance on assessing suitability when giving a personal recommendation to convert or transfer safeguarded benefits.
The FCA noted that the existing rules “do not explicitly allow for the variety of options available to members under the pension freedoms”.
‘Speed up’ the timeline
Steven Cameron, pensions director at Aegon, said “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”.
He stressed the importance of advisers in the pension transfer market engaging in the consultation. “They’re the ones who are sitting with clients on a regular basis, and who understand the sorts of factors that they need to build in with their advice,” he said.
The fact that the FCA will not publish its rules in a policy statement until early 2018 “does alarm me”, said Cameron.
FCA cracks down on transfer advice
Pension consultants have welcomed the Financial Conduct Authority’s adoption of a tough stance on companies advising on defined benefit transfers, calling it a “price worth paying” for member security in retirement.
“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?” he said.
“We need to speed up the timeline somehow, and agree on what we can agree on [in the] short term and allow more detailed aspects to be developed along the FCA’s published timeline,” Cameron added.
Stephen Scholefield, partner in law firm Pinsent Masons, agreed it was a concern that people transferring in the near future might not be receiving what is now seen as the most appropriate form of advice.
“One would hope that advisers will take on board the broad thrust of the recommendations immediately. It would seem to be in their interests to do so, both to be sure they are giving the right advice and to minimise the risk of claims against them in the future,” he said.
Potential increase to ETV costs
Joel Eytle, legal director at the DLA Piper, said the proposals come as no surprise.
“It has been the case for a while that the rules relating to advice on pension transfers and suitability were not being applied in the way the FCA wanted, creating a risk of consumer detriment,” he explained.
“The changes proposed are likely to increase the costs to employers of doing enhanced transfer value exercises,” Eytle noted.
He said the FCA acknowledges that ETVs are often run using streamlined advice. The new requirements to make a personal recommendation that must consider a person’s specific circumstances and objectives will affect how streamlined that advice can be, “and will likely increase the cost of the advice”.
Nathan Long, senior pension analyst at platform provider Hargreaves Lansdown, said one of the key proposals is to move away from a transfer value analysis.
Since the pension freedoms, “people aren’t transferring to try and better what they’ve got in the scheme, which is all a TVA shows you. They’re actually doing it for things like improved death benefits”, and “potentially to have more flexible access to their money”.
