The recent FCA policy statement on pension transfers makes clear the process it wants advisers to follow when considering them.
The regulator has confirmed any triage service cannot cross the advice boundary. This makes triage conversations almost impossible, as they can very easily stray into discussing a client’s personal circumstances.
Advisers will need to consider how to provide generic information covering the pros and cons of transferring, whether that is via access to videos, written material or referral to an independent body like The Pensions Advisory Service.
If an advice firm provides clients with a transfer value comparator during triage, then the FCA believes this is likely to constitute advice.
However, it is working with The Pensions Regulator to consider ways in which members can receive information from their scheme about the benefits they could be giving up, hopefully helping them as they initially consider a transfer.
The need for pension transfer specialists to have a Level 4 investment qualification by October 2020 has also been confirmed.
Many pension transfer specialists will already have that level, but those who do not will want to consider taking a suitable exam as soon as possible.
When it comes to the advice process, the FCA expects this to take account of both the proposed destination scheme and the proposed investments within that scheme.
Its rules do not prevent two different advisers being involved. But it expects very clear processes to be in place to demonstrate both are working together and it to be obvious to the client who is doing what, and their respective charging structures.
Advisers should also incorporate the risk profiling of any client. Considering attitude to investment risk is commonplace, but the client’s attitude to transfer risk should be assessed too.
Some of the FCA’s supervisory work has found this has either not been sufficiently detailed or pension transfer specialists have oversold the advantages of flexibility and death benefits, without considering the risks involved. So it is crucial to review your process.
The new rules for a TVC and appropriate pension transfer analysis came into force on 1 October. The TVC compares the transfer value with the estimated value needed to replace the client’s defied benefit income. This is not personalised in any way and so does not take into account personal circumstances.
In most cases, the replacement value will be higher than the transfer value offered, and this is likely to be a larger gap the further the client is from the scheme’s normal retirement age. The Apta can then consider personal circumstances.
Meanwhile, where advice is not to transfer, the FCA now requires advisers to provide a suitability report setting out the reasons why.
For those advisers that are going to be involved in final salary transfers moving forward, these FCA papers give some much-needed clear guidelines and the opportunity to review existing processes, to make sure they meet the new requirements.
Andrew Tully is pensions technical director at Canada Life