• March 29, 2024
 Changes to pension transfer advice proposed by FCA

Changes to pension transfer advice proposed by FCA

New proposals on pension transfer advice have recently been published by the Financial Conduct Authority (FCA).

Primarily for transfers from Defined Benefit to Defined Contribution pension schemes, the proposals relate to transfers where the consumer has safeguarded benefits.

The changes put forward aim to reflect the growing demand for pension transfer advice, which has seen a significant increase since the pension freedoms were introduced in 2015. Paired with the economic climate, transfer values are at an all-time high, according to the FCA.

With the intention of ensuring that consumers receive fully comprehensive advice which considers all relevant factors, the FCA’s proposals set out their expectations of both advisers and transfer specialists. The suggested changes build on a previous alert from the authority, which highlighted the issue of firms providing advice without considering the nature of the consumer investment.

As well as requiring the transfer advice to be given as a personal recommendation, the proposals include replacing the current transfer value analysis with a comparison to illustrate the value of benefits being given up. When combined, the FCA hope that the changes will ensure that advice is fully tailored to the consumer, having taken account of their individual circumstances.

The suggested changes include:

  • Replacing the current transfer value analysis requirement (TVA) with a comparison showing the value of the benefits being given up
  • Introducing a rule to require all advice in this area to be provided as a personal recommendation, which fully reflects the client’s circumstances and provides a recommended course of action
  • Updating our guidance on assessing suitability when giving a personal recommendation to convert or transfer safeguarded benefits, so that advisers focus on whether a transaction is right for a particular individual
  • Introducing guidance on the role of a pension transfer specialist

Commenting on the proposals was Christopher Woolard. The Executive Director of Strategy and Competition at the FCA stated: “Defined Benefit pensions, and other safeguarded benefits such as guarantees, are valuable so most consumers will be best advised to keep them. However, we recognise that the environment has changed significantly, so we want to ensure that financial advice considers the customer’s circumstances in full and recognises the various options now available to them.

“Our new approach should better equip advisers to give the right advice so that consumers make well-informed decisions.”

Also sharing his thoughts on the FCA’s proposals was Philip Brown. The Head of Policy at LV= highlighted the vitality of strong safeguards in order to ensure consumers are appropriately protected.

“The regulator’s proposed changes to pension transfer advice are welcome news for people approaching retirement. Since 2015, there has been a stark rise in the number of people wanting to transfer out of their defined benefit scheme to take advantage of the Freedom and Choice reforms. Therefore it’s vital there are strong safeguards in place to protect people from making choices without first understanding all the risks.

“We wholeheartedly agree advice on transfers should be a personal recommendation and strongly support changing how transfer values are presented. These changes should mean people aren’t unduly influenced into giving up valuable benefits and ensure they can have a safe and secure retirement.”

Georgia Owen

Georgia is the Senior Content Executive and will be your primary contact when submitting your latest news. While studying for an LLB at the University of Liverpool, Georgia gained experience working within retail, as well as social media management. She later went on to work for a local newspaper, before starting at Today’s Wills and Probate.