We have published new rules and guidance on how advice should be provided to consumers on pension transfers where consumers are considering giving up safeguarded benefits, primarily for transfers from defined benefit to defined contribution pension schemes.
We are introducing rules and guidance aimed at providing advisers with a framework which better enables them to give good quality advice so that consumers make better informed decisions
We are maintaining our guidance that an adviser should start from the assumption that a transfer will be unsuitable. This reflects the high proportion of unsuitable advice seen in supervisory work and need for further consideration of how transfer advice should be paid for. The existing guidance on the starting assumption does not, however, prevent an adviser from recommending a transfer where this can be demonstrated to be suitable for the consumer.
The new rules and guidance include:
- Personal recommendation: requiring all advice on pension transfers to be a personal recommendation.
- Role of the pension transfer specialist (PTS): clarifying the role of a PTS when checking advice.
- Analysis to support advice: replacing the current transfer value analysis (TVAS) requirement with the following: a requirement to undertake an 'appropriate pension transfer analysis' (APTA) of the client’s options; and a prescribed Transfer Value Comparator (TVC) indicating the value of the benefits being given up and the cost of purchasing the same income in a DC environment.
- Opt-outs: applying a consistent approach for pension opt-outs where there are potential safeguarded benefits.
Defined Benefit (DB) pensions, and other safeguarded benefits providing guaranteed pension income, give valuable benefits so most consumers will be best advised to keep them. But we recognise the pensions environment is changing, particularly since the introduction of the pension freedoms gave consumers more options to access their pension savings. As a result, there is increased demand for pension transfer advice. Given this, we wanted to ensure that those providing regulated financial advice fully consider the client’s circumstances and properly consider the various options available to them.
Who this applies to
This policy statement will primarily be of interest to:
- firms advising on pension transfers
- those acting as pension transfer specialists
- pension providers
- those providing software for pension transfer advice
- consumer groups
The consultation may also be of interest to:
- employer sponsors of defined benefit pensions
- employee benefit consultants
- providers of qualifications
- providers of professional indemnity insurance
- other industry and professional bodies
What you need to do
Firms should note the Handbook changes in the policy statement and adapt their practices accordingly. Some changes come into force immediately, whereas those relating to the new analysis requirement will come into force on 1 October 2018. The assumptions changes apply from 6 April 2019.
We are consulting on further changes in CP18/7, and are asking discussion questions on adviser charging structures for Defined Benefit transfer advice.