Under the new system, all advice provided on pension transfers will be seen by the regulator as a personal recommendation.
The current transfer value analysis (TVA) requirement will be replaced with a comparison showing the value of the benefits being given up.
In addition, the watchdog will also remove the assumption for financial advice that a transfer is not suitable in most cases.
Proposals welcome
Rachael Griffin, financial planning expert at Old Mutual Wealth, said the consultation is an “important step in modernising” defined benefit (DB) transfer advice.
“Proposals include removing the starting assumption that a transfer is not suitable at outset and including graphics in comparison reports to make the potential cost of deciding to transfer abundantly clear to consumers.
“The FCA requirement for advice to be treated as a personal recommendation is welcome. It is what should be taking place at present by determining what is in the client’s best interest.
“There will undoubtedly be work needed on some of the detail included in the consultation to deliver the right outcomes for both clients and the industry alike,” she said.
‘Past sell-by date’
Rachel Vahey, product technical manager at Nucleus, said the regulatory framework on pension transfers is “past its sell-by date”.
“Defined benefit transfers are quickly edging to the top of the financial planning agenda, thanks to a heady mix of high transfer values and consumer desire for flexibility.
“Whatever emerges needs to be a robust system designed for the long term, not just in response to these extraordinary times. Good financial planning is at the heart of defined benefit transfer advice, but the regulatory framework also needs to be fit for purpose,” she said.
Vahey added that updating the TVA requirements is a “necessity to bring it into the 21st century” and hopes it will be replaced with something “more focused”.
“Every person’s circumstances are unique and advice has to be tailored for the individual, so it is good to see support for the move to make DB transfer advice a personal recommendation. Regulated advice should reflect the myriad of options shaped by a person’s objectives and the current financial planning environment,” she said.
Tougher stance
The FCA has taken a much tougher stance on pension transfers in recent months, with several firms ordered by the regulator to stop doing business in this area.
Section 166 orders have been handed out to deVere UK and Intelligent Pensions, which prevent the firms from carrying out pension transfers until an independent skilled person conducts a review of the business.
Speaking at the International Adviser Portfolio Bond and Tax Planning Forum in Birmingham on Tuesday, Ian Smith, director of UK-based IFA firm Central Wealth Planning believes the FCA’s main concern is transfer specialists being separate from the advice.
“My understanding is that Intelligent Pensions was closed down because it was providing standalone reports and the regulator felt they weren’t looking enough at actually what happened on that ongoing process for the next 20 or 30 years.
“People could then be using that report and saying ‘yes you need a 4% investment return’ so come in and invest in these wacky storepods,” he told an audience of advisers.
He added that he could see “where the regulator was coming from” but said the FCA should avoid “turning the dial so hot that people lose the opportunity to take the appropriate advice on a transfer which can be beneficial in the right circumstances”.
