FCA produces new rules for pension transfers

24 April 2018



Justin Corliss looks at what we know from the recently published FCA consultation paper on pension transfers.

On Monday 26 March the FCA released PS18/6, its much awaited response to the CP17/16 consultation paper, Advising on Pension Transfers. While it provides some clarity for advisers, further consultation will be required.

Let’s look at what we know following the publication of PS18/6.

  • Advice on pension transfers must take the form of a personal recommendation. While it’s difficult to find fault with this ruling, it isn’t a great leap as the FCA acknowledges most advice on transfers is already given as a personal recommendation
  • Begin with the assumption a transfer is not suitable for the client. CP17/16 implied the FCA was ready to move to a neutral starting point for pension transfer specialists (PTS), but the fall-out from British Steel has prompted a u-turn. Whether the PTS begins from a neutral position or an assumption of unsuitability, the default is to stay in the DB scheme unless the PTS can demonstrate transferring is likely to be in the client’s best interests. So retaining the starting assumption of unsuitability should not have significant impact on the advice process
  • The rules on checking pension transfer advice have tightened considerably, which should result in better member outcomes. Pension transfer specialists must now check the entirety of the advice process and consider whether this advice is sufficiently complete. They must also confirm in writing they agree with the advice, including any recommendation, before the report is given to the client. Consequently, clients should never see a report without its suitability having been checked by a PTS
  • Appropriate pension transfer analysis (APTA) including a Transfer value comparator (TVC) will replace transfer value analysis. The aim of the APTA is to demonstrate the suitability of the personal recommendation. In doing so the adviser should:
    • Consider the impact of tax and access to state benefits
    • Where appropriate consider a reasonable period beyond average life expectancy
    • Make broader consideration of the trade-offs the client is making when deciding to transfer
    • Consider other ways of achieving the client’s objectives
    • Provide information on scheme funding and the role of the Pension Protection Fund (PPF) & Financial Services Compensation Scheme (FSCS) in a balanced and objective way.
  • The TVC element of the APTA aims to show the cost of providing the same benefits as the DB scheme, but in a DC scheme. The TVC is displayed in a prescribed graphical format:
    • Gross of tax free cash and assumes an annuity purchased on the same basis as the scheme benefits, irrespective of the client’s personal circumstances.
    • Investment growth rate will be based on gilt yields
    • Charges capped at 0.75%.
    • Shows the cash equivalent transfer value offered alongside the cost of purchasing the same benefits via an annuity

Next steps

Read the policy statement

Read the full FCA Policy Statement

Further consultation will be carried out via CP18/7 with a response date of 25 May 2018. This paper considers many issues so watch this space for future articles on:

  • Qualification standards
  • The two adviser advice model
  • Charging models including contingent charging
  • Risk assessment
  • Triage services
  • Client attitude to transfer risk


About the author

Justin Corliss

Senior Pensions Development and Technical manager

Justin’s first foray into Financial Services was in Australia in 1997 with Commonwealth Bank of Australia working predominately in retail mortgage lending. In 2002 Justin and his British wife moved to Scotland where he worked in broker consultant roles with both Scottish Widows and Scottish Life before spending a brief period as an Employee Benefits Consultant dealing predominately with Auto Enrolment and associated business consultancy. Justin is involved in developing adviser facing content, presenting, writing articles and commenting for the press. Justin has studied continuously since arriving on these sunny shores and holds the Advanced Diploma in Financial Planning including the CeMap and Lifetime Mortgage qualifications. His primary focus is pension planning and he holds the AF3 & AF7 qualifications. A huge sports fan, Justin will happily discuss the merits of the Australian cricket team for hours on end.

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