Advice on pension transfers generally must be provided by, or checked by, a Pension Transfer Specialist (PTS). If the PTS is only checking the transfer they must check the entire process, not just the numerical analysis.
A PTS is not needed for transfers or conversions involving a Guaranteed Annuity Rate.
The transfer value analysis requirement (TVA) has been replaced with a requirement to undertake ‘Appropriate Pension Transfer Analysis’ (APTA) of the client’s options. This includes a prescribed comparator (Transfer Value Comparator (TVC)) which aims to show the cost of providing the same benefits as the DB scheme but in a DC scheme.
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 (GMPs) 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.
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:
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.
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 of the following:
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.
An adviser firm now needs to 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.
Firms that held this permission on 6 April 2015 had their permission automatically varied from that date to include permission to carry out the activity of advising on the transfer or conversion of safeguarded benefits.
Before 6 April 2015 firms without the pension transfer permission could have advised on plans with GARs. These firms now need to have the pension transfer permission.
Since 6 July 2016 appointed representatives (AR) of an authorised financial adviser 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 AR need not have these permissions.
Advice on the transfer or conversion of safeguarded benefits must be provided by, or checked by, a PTS. This includes where the purpose of the transfer or conversions is to obtain immediate access to the pension savings.
FCA Policy Statement PS18/6 – Introduced Handbook guidance on the role of a Pension Transfer Specialist (PTS) when they check, rather than give, advice on the pension transfers, opt-outs or conversion of safeguarded benefits. Also, amending the definition of a Pension Transfer Specialist (PTS) to support this, with the expectation they will:
Though they do not have to “assess the reasonableness of the personal recommendation reached by the adviser” as detailed in the CP17/16.
This removes the previous exception to the rules whereby a client could transfer benefits for immediate crystallisation without the need for an adviser to be a PTS. For example, a transfer from an occupational pension scheme to income drawdown or exercising the open market option.
A PTS is not needed for transfers or conversions involving a GAR.
A PTS is also not needed for advice on transfers from occupational pension scheme where there are no safeguarded benefits. This is a relaxation on the previous rules.
The adviser firm will still need to have the pension transfer permission to provide advice in each of the above cases.
An APTA is needed for advice on all transfers and conversion of safeguarded benefits (except GARs) to flexible benefits, including where the client 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 exception to this is where defined benefits are being taken at the scheme's normal retirement age. An APTA is not required in these circumstances as it will be of limited use to the client. However, an APTA is required where benefits are being taken before normal retirement age.
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.
The purchase of an annuity with safeguarded benefits is not considered to be a conversion. This means a client 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.
FCA - Policy Statement PS15/12 - Proposed changes to our pension transfer rules: Feedback on CP15/7 and final rules.
FCA – Consultation Paper CP17/16 - Advising on Pension Transfers.
FCA – Policy statement PS18/6 - Advising on Pension Transfers – feedback on CP17/16 and final rules and guidance.
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.