The Financial Conduct Authority has published new rules on pension transfer advice following its research that showed a high proportion of advice was not suitable. It is also seeking views on contingent charging among others. The industry has welcomed the additional clarity provided in this area.
The FCA has published final rules to ensure transfer advice for defined benefit to defined contribution schemes "considers relevant factors", it said.
Transfer advice must now be given as a personal recommendation taking into account an individual's circumstances.
The rules replace the current transfer value analysis with a requirement to undertake a personalised analysis of the consumer’s options. This must include a comparison that shows the value of the benefits being given up.
In its consultation, the FCA is proposing further changes, such as a requirement for advisers giving transfer advice to have the same qualifications as investment advisers.
It also wants to hear whether it should set rules for 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, the FCA said, but cautioned: "This is a complex area, where any action taken may have an impact on access to advice."
The watchdog is maintaining its position that an adviser should assume at the start 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 said.
Chair of the Work and Pensions Committee Frank Field agreed dropping the starting presumption that a DB transfer is a bad idea would have sent entirely the wrong signal.
"The FCA should now take the battle against the pension-snatchers further by banning contingent charging on defined benefit transfer advice," he added.
The pensions industry has also welcomed the new rules and guidance.
Steven Cameron, pensions director at provider Aegon, said: “Demand for advice on DB transfers has never been higher, and the FCA has now set out clearly ‘what good looks like’, allowing advisers to meet demands from their clients with confidence."
Philip Brown, head of policy at provider LV, said it is vital the industry makes sure there are strong safeguards in place to protect savers.
"We wholeheartedly agree advice on transfers must be a personal recommendation and explicitly showing the value of benefits given up should help ensure people aren’t unduly influenced by a big transfer value," he said.
Kay Ingram, director of public policy at independent financial advisers LEBC, said LEBC would support a ban on contingent fee charging, but she did not agree with the FCA that the starting point of a transfer must be an assumption that it is unsuitable.
“We believe that all advice should start from an impartial standpoint and needs to take full account of individual circumstances... The consumer is paying for impartial expert advice which takes all of their circumstances into account, and that is what they should receive with no bias towards transferring or remaining in the scheme,” she said.
