The FCA should set out how it expects IFAs to handle transfers in collective defined contribution schemes before they are established, Aegon says.
In its response to the government’s consultation on CDCs that ends tomorrow, the provider lays out the potential difficulties these schemes pose for IFAs.
CDC pensions – which are not yet available in the UK – offer regular retirement income but in the form of a target benefit rather than a guarantee like final salary schemes.
The government’s consultation published in November 2018 marked a step change as it mentioned officials at the DWP have been working closely with Royal Mail to develop proposals for the introduction of CDCs.
In the forward to the consultation pensions minister Guy Opperman wrote an appropriately regulated CDC regime can benefit savers.
But Aegon warns IFAs would need to consider a range of issues regarding CDCs such as whether an individual considering transferring in or out is being offered a fair value.
It also points out IFAs would have to consider the merits of transfers, any sustainability issues within the scheme and the personal health circumstances of their clients.
Aegon pensions director Steven Cameron (pictured) says: “Even if the Royal Mail is the only CDC scheme, advisers could have clients who are seeking advice on transferring into or out of the scheme.
“Advisers will need to consider a range of issues including if the transfer terms are fair, if it’s a good time to transfer, and if the individual has particular personal circumstances which make transferring more or less suitable. It will be vital for the FCA to make its advice expectations clear.”
CDCs have received criticism in the past from the Centre for Policy Studies fellow Michael Johnson for their inflexibility.
Johnson also says they risk creating irreversible intergenerational injustice by overpaying pensioners at the expense of current and future employees.
To answers criticisms like these, Cameron adds: “It will be important to make sure members know that the pension freedoms the UK has fallen in love with won’t be on offer within CDC schemes unless individuals transfer out.
“So as well as taking care that target benefits are fairly calculated, the basis for turning these into transfer values will also need careful consideration to ensure intergenerational fairness.”