FCA publish final rules and guidance over pension transfer advice

The FCA’s review of the quality of pension transfer advice has been ongoing since 2015, and the FCA has recently published its feedback and final rules and guidance on improving the quality such advice. With the publication of the new rules, firms and advisers will have greater certainty over what is expected when they offer pension transfer advice.
The new rules are aimed at improving the advice fund customers receive when considering transferring their retained pension benefits. The policy statement confirms that the FCA is taking forward most of the proposals originally put forward in March 2018, which mainly related to transfers from Defined Benefit (DB) to Defined Contribution (DC) pension schemes. The consultation proposed further changes to rules and guidance when advising on transferring from safeguarded benefit schemes (where there is some form of guarantee or promise about the rate of secure pension income that the member will receive, or will have an option to receive).
The new rules include:
  • raising qualification levels for pension transfer specialists (PTS) to require them to obtain the same qualification as an investment adviser alongside the existing PTS qualification;
  • guidance to clarify expectations that advisers should be exploring clients’ attitudes to the general risks associated with a transfer, in addition to their attitude to investment risks;
  • guidance to illustrate how firms can carry out an appropriate ‘triage’ service (an initial conversation with potential customers), without stepping across the advice boundary, by providing generic, balanced information on the merits of pension transfers;
  • a requirement for firms to provide a suitability report regardless of the outcome of advice;
  • updating the assumptions to be made when valuing increases applied to DB scheme benefits, where there are upper and lower limits applying to inflationary pension increases. 
As part of the consultation, the FCA also sought views on whether to intervene in charging structures, and the impact on access to advice due to restrictions on charging models, which could include banning the complex area of contingent charging. The responses to the consultation confirm the FCA’s initial analysis that the evidence it has seen does not show contingent charging is the main driver of poor outcomes for customers. Any changes to the rules on contingent charging could have implications for the supply of advice, and because of the significance to all stakeholders in the market, further analysis is to be carried out, with consultation on new interventions if appropriate in the first half of next year. The FCA has also identified a number of other causes of poor advice, and it will therefore carry out further work on the quality of advice.

 Click here for the full Policy Statement.
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