The FCA has set out a package of measures aimed at addressing weaknesses across the defined benefit (DB) transfer market, which include the following:
- Contingent charging will be banned in most cases, to remove the conflict of an adviser only being paid when a transfer is made.
- Advisers will be able to provide an abridged advice service to help consumers access advice at a more affordable cost. This can only result in a recommendation not to transfer or a statement that it is unclear whether a consumer would benefit from a pension transfer without giving full advice.
- To assist firms giving transfer advice, the FCA has issued a Guidance Consultation, to help advisers put in place better processes to ensure that consumers receive suitable advice.
- The FCA is undertaking 30 enforcement investigations arising from suitability of advice concerns identified during the FCA’s industry-wide data collection exercise and its in-depth reviews of the 85 most active firms in the DB transfer market.
- The FCA will write to around 7,700 former members of the British Steel Pension Scheme, who transferred out, inviting them to revisit the advice they received and to complain if they are concerned.
The new rules banning contingent charging are set out in Policy Statement (PS) 20/6; “Pension Transfer Advice: Feedback on CP 19/25 and our final rules and guidance”. Other measures set out in the Policy Statement include;
- requiring firms to consider an available workplace pension scheme as a receiving scheme for a transfer.
- enabling firms to give a short form of advice (abridged advice).
- empowering consumers to make better decisions by improving how advisers disclose charges and requiring checks on consumers’ understanding during the advice process.
The FCA is also consulting on guidance on what it expects from firms when advising on pension transfers and conversions, particularly from DB schemes to defined contribution (DC) schemes. This Guidance Consultation (GC 20/1), “Advising on Pension Transfers”, sets out best practice and case study examples of suitable and unsuitable advice. The FCA is also seeking views on a scheme data template and an updated version of the jointly branded FCA/The Pensions Regulator factsheet for employers and trustees on providing support on financial matters.
Christopher Woolard, Interim Chief Executive, said “The proportion of customers who have been advised to transfer out of their DB pension is unacceptably high. While much of the advice we looked at was suitable, we are still finding too many cases in which transfers were not in the customer’s best interests. The steps we are announcing today will drive up standards.”
The full press release can be found here and the update on the FCA’s ongoing work can be found here.