Safeguarded benefits
Safeguarded benefits refer to pension benefits that include a guarantee or promise of a specific level of income or other benefits. This article looks at what safeguarded benefits are and when pension transfer advice is needed.
Key facts
- Advice on pension transfers generally must be provided by, or checked by, a Pension Transfer Specialist.
- Individuals with safeguarded benefits worth more than £30,000 must take financial advice before converting, transferring, or taking them as a cash lump sum.
- There is a requirement to do an 'Appropriate Pension Transfer Analysis' which includes a Transfer Value Comparator to show the cost of providing the same benefits in a Defined Contribution (DC) scheme.
What are safeguarded benefits?
What are safeguarded benefits?
Safeguarded benefits are defined as benefits that are not money purchase or cash balance benefits. This means defined benefits, guaranteed pensions including guaranteed minimum pensions and guaranteed annuity rates (GARs).
Some people may be surprised by the inclusion of GARs in the above list. This is because the benefits are calculated by reference to the guarantee and not just the plan value.
When must an individual take advice to give up safeguarded benefits?
When must an individual take advice to give up safeguarded benefits?
An individual with safeguarded benefits worth more than £30,000 under the scheme must take financial advice before they can do any of the following:
- Convert these benefits into a different form of flexible benefits under the scheme.
- Transfer these benefits to another scheme to take flexible benefits.
- Take a cash lump sum in respect of these benefits.
An individual doesn't need to take financial advice where their benefits under the scheme are valued at £30,000 or less. Providers may not accept non-advised transfers of safeguarded benefits so you should check before submitting any transfer applications.
Not all schemes or plans will offer all of the above options.
What form does the confirmation of receipt of financial advice take?
What form does the confirmation of receipt of financial advice take?
The individual must confirm to the scheme administrator they have received financial advice before the transaction can proceed. This confirmation must be provided within 3 months of the individual receiving the safeguarded benefit value from the scheme administrator.
The confirmation must take the form of a written statement from the adviser confirming all the following:
- They have provided financial advice to the individual on the proposed transaction.
- They have the appropriate permissions to carry out the transaction.
- The adviser's FCA registration number to carry out the transaction.
- The individual's name and the name of the scheme in which they have the safeguarded benefits.
The adviser does not necessarily have to agree with the proposed transaction to provide this confirmation. They are simply confirming that they have provided advice on the proposed transaction to the individual.
Firm's permissions
Firm's permissions
An adviser firm must have the extended 'advising on pension transfers and pension opt-outs' permission to advise on transfers and conversions of safeguarded benefits to flexible benefits. This includes payment of uncrystallised funds pension lump sums (UFPLS) in respect of safeguarded benefits.
Appointed representatives of an authorised financial adviser firms are allowed to advise on the conversion and transfer of safeguarded benefits to flexible benefits. This means that so long as the authorised financial adviser firm has the permissions to advise on pension transfers and pension opt-outs the appointed representatives need not have these permissions. However, the firm must ensure that the advice is checked by a pension transfer specialist.
Pension transfer specialist
Advice on the transfer or conversion of safeguarded benefits must be provided by, or checked by, a pension transfer specialist. This includes where the purpose of the transfer or conversions is to obtain flexible benefits.
A pension transfer specialist is not needed for:
- Transfers or conversions involving a GAR.
- Advice on transfers from occupational pension scheme where there are no safeguarded benefits.
However, the adviser firm will still need to have the pension transfer permission to provide advice in each of the above cases.
Appropriate pension transfer analysis (APTA)
An APTA is needed for advice on all transfers and conversion of safeguarded benefits (except GARs) to flexible benefits, including where the individual seeks immediate access to their pension savings. This includes transfers from defined benefit to defined contribution schemes, as well as from defined benefit to personal pension and stakeholder pension schemes.
The APTA includes a prescribed comparator (Transfer Value Comparator) which indicates the value of the benefits the consumer would be giving up. More details on these can be found in PS18/6.
Purchase of an annuity
The purchase of an annuity with safeguarded benefits is not considered to be a conversion. This means an individual with a GAR can use these benefits to purchase a different shape of annuity without the need for advice where these benefits are worth more than £30,000.
Frequently asked questions
Your questions answered.
If an advising firm intends to transact pension transfers that only involve GARs and/or DC benefits, does it need to have the pension transfer permission?
Yes, it does, although there would be no need for the adviser involved in the transaction to be a pension transfer specialist. Where firms only want permission to be able to transfer plans where GARs are the only safeguarded benefit, the FCA will consider granting a limited permission.
See section 2.2 of FG21/3: Advising on pension transfers (fca.org.uk)
Does an adviser need to be a pension transfer specialist to advise on a transfer of safeguarded benefits to a personal pension, stakeholder or occupational DC scheme (for example Contracted-in Money Purchase scheme, Executive Pension Plan)?
Yes, they do, unless the safeguarded benefits are GARs. Whether GARs are involved or not, the advising firm has to have permission to transact pension transfers.
2.2 Permissive Regime - FCA: GC20/1 Guidance consultation Advising on pension transfers
Does an adviser need to be a pension transfer specialist to advise on a transfer of an occupational DC pension to a personal pension, stakeholder or occupational DC scheme (for example Contracted-in Money Purchase scheme, Executive Pension Plan)?
No, providing there are no safeguarded benefits, but the advising firm would need to have permission to transact pension transfers.
Does an adviser need to be a pension transfer specialist to advise on a transfer of a personal pension or stakeholder plan to a personal pension, stakeholder or occupational DC scheme(for example Contracted-in Money Purchase scheme, Executive Pension Plan)?
No, this is not a pension transfer, so no pension transfer specialist need be involved. The advising firm would also not need the pension transfer permissions unless GARs are involved.
If safeguarded benefits are exchanged for flexible benefits within the same scheme, does the adviser involved have to be a pension transfer specialist?
Yes, advising on conversion or transfer of safeguarded rights to flexible benefits now counts as a pension transfer. So even if this conversion can be done within the same scheme, the adviser would need to be a pension transfer specialist and the firm would have to have permission to advise on pension transfers. The only exception would be where the safeguarded rights in question are GARs.
If the transfer is for immediate crystallisation, does the adviser need to be a pension transfer specialist?
If the transfer is of safeguarded benefits (except GARs), then yes. If it involves DC benefits only, with no safeguarded benefits, then no. Again, the advising firm has to have permission to transact pension transfers.
Further information
The FCA Defined Benefit Advice Assessment Tool can help adviser firms understand how the FCA assess the suitability of Defined Benefit (DB) pension transfer advice.
- Defined Benefit Advice Assessment Tool
- PS15/12 - Proposed changes to our pension transfer rules: Feedback on CP15/7 and final rules - June 2015
- PS18/6 - Advising on Pension Transfers – feedback on CP17/16 and final rules and guidance - March 2018
- PS18/20 - Improving the quality of pension transfer advice - March 2018
- PS20/6 - Pension transfer advice: feedback on CP19/25 and our final rules and guidance
- GC20/1 - Advising on pension transfers
Disclaimer
The information provided is based on our current understanding of the relevant legislation and regulations and may be subject to alteration as a result of changes in legislation or practice. Also it may not reflect the options available under a specific product which may not be as wide as legislations and regulations allow.
All references to taxation are based on our understanding of current taxation law and practice and may be affected by future changes in legislation and the individual circumstances of the investor.