FCA finalises pension transfer advice rules

FCA has published feedback and final rules and guidance following its consultation on improving the quality of pension transfer advice.

Since the introduction of “pension freedoms” in 2015 members have had more options available to them in terms of accessing their defined contribution (DC) pension savings. This has resulted in a substantial increase in the number of transfers from defined benefit (DB) schemes to DC schemes. The Pensions Regulator estimates that, for the period 1 April 2017 to 31 March 2018, there have been approximately 100,000 transfers from DB schemes (although all of these may not have been to a DC scheme).

The FCA’s ongoing supervisory work of pension transfer advice, including its file reviews on advice given to members of the British Steel Pension Scheme, suggested that suitable advice was not being given in a high proportion of transfer cases. It therefore published a consultation paper, in March 2018, proposing further changes to its rules and guidance on advising on transfers. The consultation was largely concerned with transfers from DB to DC pension schemes.

The changes now being implemented include a requirement for all pension transfer specialists to hold a specific qualification for providing advice on investments by October 2020, meaning advisers will need to identify whether a proposed pension scheme and investment solution is consistent with the client’s needs and objectives. The FCA also expects advisers to consider their client’s attitude to, and understanding of, the risks of giving up safeguarded defined benefits for flexible benefits.

As part of the consultation, the FCA also sought views on whether to intervene in charging structures by, for example, banning contingent charging (whereby a fee for advice is only paid when a transfer goes ahead). The FCA’s initial analysis suggests that contingent charging is not the main driver of poor outcomes for customers. It intends to carry out further work on the quality of advice and consult on new interventions, if appropriate, in the first half of 2019.