The FCA is seeking industry feedback on making pension transfer advice a personal recommendation and replacing the transfer value analysis (TVA) with a comparison document showing the value of the benefits given up.
The UK watchdog said its proposals build on an FCA alert in January that highlighted concerns over adviser behaviour and the risk of transferring into unsuitable investments or – worse – being scammed.
Specific effect on overseas transfers
The FCA said that the proposals set out in its consultation will have “specific effects on the process of transferring safeguarded benefits to an overseas pension” and may mean that the UK adviser “takes on greater responsibility that then currently do”.
Replacing the TVA with an appropriate pension transfer analysis (APTA) will “likely result in a more complex analysis having to be undertaken for an overseas transfer than for a transfer to a UK DC arrangement”, the regulator said.
Where a transfer overseas is being considered, firms must ensure the APTA contains enough information to allow a comparison between the financial and tax regimes in the UK and destination country.
The watchdog used qualifying recognised overseas pension schemes (Qrops) as an example, where the transfer may incur the 25% charge or there may be complex tax planning depending on the nature of tax treaties between the two jurisdictions.
Two points highlighted by the FCA that advisers must consider are inflation and exchange rates.
“In practice, this is likely to require a UK-based adviser to work in conjunction with an overseas adviser to understand where the funds are likely to be transferred,” the regulator said.
“Our supervisory work indicates that firms will need to take particular care to consider appropriate real rates of return, multiple layers of fees which are not always loaded into product charges and taxation considerations.”
Negative assumption
Following widespread mis-selling of pension transfers in the late 80s and early 90s, regulators introduced guidance that all advice on pension transfers should start from the assumption that a transfer is unsuitable.
“However, the introduction of the pension freedoms has altered the options available and for some consumers a transfer may now be suitable when it wasn’t previously,” the FCA said. “We therefore propose to remove the existing guidance that an adviser should start from the assumption that a transfer will be unsuitable.”
The UK regulator took the opportunity to clarify that the “onus is on the adviser to provide that a transfer is in the client’s best interest”.
The proposals do not represent a softening of the FCA’s stance but are intended to make it clear that it is essential for advisers to demonstrate that an individual will benefit from giving up a valuable pension.
