Morrison, head of platform technical at A J Bell, said it was “mystifying” that the Financial Conduct Authority has not confirmed the full extent and timetable for its consultation on defined benefit transfers.
“Hopefully we will get more clarity this week. The volume of activity around DB transfers is higher than it has been for years and the regulator is clearly looking closely at some firms, but then it is leaving the majority of the market to operate in a bit of an information vacuum.”
The FCA is expected to release its consultation on advising on pension transfers tomorrow (Wednesday), ahead of which AJ Bell canvassed financial advisers showing that 70% were refusing to take on insistent clients who went against advice not to transfer out of their defined benefit schemes.
Ghost of misselling scandal
Morrison said: “The ghost of the 1990’s misselling scandal is clearly hovering all over this but that focused just on transfers that went ahead when they shouldn’t have done. Avoiding that is just as important today, but we now face an equally problematic situation – transfers that should go ahead but don’t because of fear of regulatory sanction. That is also a poor customer outcome.”
He added that advisers urgently need some clarity of what the FCA expects of them.
“This must cover the FCA’s current stance on DB transfers post pension freedoms, the TVAS assumptions which are now hideously outdated and expectations around the advice process and charging options.”
Morrison also cited how much of the DB transfer process can be affected by behavioural bias.
“Post RDR we must remember that ‘advice’ is the product and that advice not to transfer could and will be for many the most suitable outcome. This is particularly relevant where advisers are operating any form of contingent charging.”
Consultation must address issues
A J Bell said the FCA’s imminent consultation must address three key areas:
Firstly, the current regulatory presumption that a DB transfer is unsuitable, which A J Bell said was questionable whether still relevant in the post-pension freedoms market and at a time when many DB schemes are in deficit.
Secondly, TVAS assumptions, where AJ Bell says its critical yield figures are no longer the only factor now more people are opting for income drawdown post the UK’s pension freedom changes.
Some people might place a higher value on being able to access their pension early or in a more flexible way and for others the generous DC death benefits may be an attraction, AJ Bell says.
It also pointed to the 79% of advisers in its survey who don’t believe that annuities remain the appropriate basis upon which to assess critical yield calculations post pension freedoms.
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