We have published new rules and guidance on pension transfer advice, particularly defined benefit (DB) to defined contribution (DC) transfers. These include reducing the conflicts of interest created by current charging structures and enabling firms to give high quality advice, creating a more sustainable market for the long term.
This Policy Statement forms part of a wider package to improve the suitability of pension transfer advice. We are publishing it alongside Guidance Consultation GC20/1 and the findings of our multi-firm review into the suitability of pension transfer advice.
Why we are changing our rules
Given the advantages of DB schemes, the proportion of consumers that advisers have advised to transfer to DC schemes remains too high. We are concerned that contingent charging – where advisers are only paid if a transfer proceeds - creates an obvious conflict of interest. In CP19/25, we consulted on a ban on contingent charging.
This Policy Statement summarises the feedback we have received to CP19/25. It sets out our final rules and guidance, including a package of measures to:
- ban charges for advice that consumers only pay when a transfer or pension conversion proceeds, except in certain limited circumstances
- require firms to consider an available workplace pension scheme as a receiving scheme for a transfer
- enable firms to give a short form of advice (abridged advice)
- empower consumers to make better decisions by improving how advisers disclose charges and requiring checks on consumers’ understanding during the advice process
- enable advisers to give better quality advice and improve professionalism by introducing specific continuing professional development on pension transfer advice
- set up new data collections that advice firms must give us to improve our ability to supervise the sector
- amend technical areas of our rules and guidance to clarify and extend existing requirements
Who this applies to
This Policy Statement will be of interest to firms giving advice on pension transfers, particularly from DB to DC schemes. It will also be relevant to stakeholders with an interest in pensions and retirement income, including:
- individuals and firms providing advice and information on safeguarded benefits more widely
- managers and operators of contract-based pension schemes and trust-based occupational schemes
- trade bodies representing financial services firms
- professional indemnity insurers
- administrators of pension schemes
- members of pension schemes
- consumer representative groups
- all firms that are required to complete Form E (PII self-certification) in the Retail Mediation Activities Return, or forms FSA031, FSA032 or FIN-APF, should read Chapter 6
- charities and other organisations with an interest in the ageing population and financial services
Background to our work on pension transfer advice
Since the pension freedoms were introduced in 2015, we have regularly assessed the suitability of advice of firms advising on pension transfers. We have consistently found that levels of unsuitable advice are too high, given the obvious benefits of consumers remaining in DB schemes. This has serious consequences for consumers who may find themselves considerably worse off in retirement as a result.
We have intervened previously with rules designed to improve the quality of pension transfer advice to consumers, but we believe too many advisers are still giving poor advice. Our work shows that some advisers are unclear about what they need to take into account when giving advice. We are also concerned that charging structures create an obvious conflict of interest.
Firms should note the Handbook changes in the Policy Statement and adapt their practices accordingly. The changes to triage services and using estimated transfer values come into effect on 15 June 2020 and the remainder come into force on 1 October 2020.