This Consultation Paper sets out our proposed measures to change how advisers manage and deliver pension transfer advice, particularly for defined benefit (DB) to defined contribution (DC) transfers. We are consulting on banning contingent charging and making other changes to our rules and guidance.
The government’s pension freedoms gave consumers with defined contribution (DC) pensions more flexibility in how and when they could access their pension savings. The government created a mandatory advice requirement to prevent members of defined benefit (DB) schemes transferring against their own best interests.
DB pensions are extremely valuable as they offer guaranteed, inflation-proofed lifetime income for them and their spouse, which most consumers want in retirement. However, significant numbers of DB scheme members have transferred to DC schemes.
In our view, given the advantages of DB pensions, the proportion of consumers advised to transfer is too high. We believe that many of these transfers will not have been in consumers’ best interests.
We are concerned that too many advisers are delivering poor advice, much of it driven by conflicts of interest in the way they are remunerated. In particular, the practice of contingent charging creates an obvious conflict. This is where advisers only get paid if a transfer proceeds.
We are consulting on the following proposals:
We are proposing strengthening our existing requirements that advisers giving pension transfer advice should consider an available workplace pension as a receiving scheme for a transfer where one is available.
This is intended to address the conflicts of interest created by ongoing advice charges. It will also reduce the level of transfers involving unnecessarily complex and expensive solutions.
We have concerns about advisers’ overall competence and their ability or willingness to give consumers information to understand the implications of a transfer. So we are consulting on a package of proposals including:
This consultation will be of interest to firms providing advice on pension transfers from DB to DC schemes.
This consultation will also be relevant to stakeholders with an interest in pensions and retirement income, including:
Consumers will also be affected by this consultation.
We will publish our finalised Handbook text in a Policy Statement in the second quarter or third quarter of 2020.