Pension transfers - Financial Conduct Authority

Pension transfers

Published: 30/08/2015     Last Modified: 27/10/2015
A pension transfer is where an occupational pension is moved to a personal pension.

A full definition of a pension transfer can be found in the handbook glossary.

Where an individual is switching from one personal pension to another, for example, from a personal pension to a SIPP or from one occupational trust-based scheme to another, this is not a pension transfer.

Areas of concerns

Firms are not providing sufficient evidence for recommending a transfer, or the reasons given were not specific to the client. We have seen examples where clients with different attitudes to risks are being advised to invest in the same fund with little or no justification. Firms need to ensure their risk profiling procedures are in-line with the good practice we published.

Permissions

Our rules (COBS) require firms advising on pension transfers to have a specific permission – advising on pension transfers and opt-outs. Firms who wish to carry out pension transfer business must apply for this permission. If a firm does not have these permissions, they cannot undertake this activity.

In addition to the firm having the required permission, the advice must be given, or checked by, a pension transfer specialist. A pension transfer specialist must follow our training and competence rules, and have the appropriate qualifications and with that, the permission to perform the function. The table of appropriate qualifications is available in our Handbook.

If you have acted out of scope of your permission, you need to have the business reviewed by a suitably qualified person to ensure the advice given was suitable. You should also review your system and controls, to make sure this does not happen in the future.

Find out more about our training and competence regime.

Transfer Value Analysis (TVA)

Our rules require a transfer value analysis (TVA) to compare the benefits being given up from a defined benefit pension scheme with those that could be offered by a personal pension scheme.

We were advised of potential misuse of the existing assumptions used in a TVA, particularly when valuing pension increases in retirement.

We published rules and guidance in PS12/8, to strengthen the protection for members of defined benefit pension schemes who are considering moving their money into personal pensions.

A number of changes were made to our rules to ensure a fairer analysis of a pension transfer, including:

  • The rules for calculating mortality will, be aligned with those used by the Board for Actuarial Standards. This will make them consistent with annual pension statements that all personal pension holders receive once a year.
  • Introducing explicit LPI-linked annuity rates to be used to value LPI pension increases. The rules state the following: for caps of 3.5% and below, fixed rate escalation based on the cap should be used; for collars of 3.5% or above, fixed rate escalation based on the cap (if there is one) should be used; and in all other cases, the RPI annuity rate should be used.
  • The annuity interest rate (AIR) will be reviewed more frequently. The rules include a provision for TVA which, in addition to the standard review of the AIR on 6 April each year, introduces a 12-month rolling average which must be applied in between the standard reviews.
  • Guidance has been introduced. The comparison provided to the member should be illustrated on growth rates that take into account the likely returns of the pension fund assets. The guidance clarifies the need for advisers to discuss these risks with members.

Firms need to think more actively about how the comparison and the recommendations are presented to clients and their ability to understand the long documents that they receive