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Apfa backs ‘radical’ pension transfer analysis overhaul


The FCA is being urged to fundamentally rethink the rules it imposes on advisers when carrying out pension transfer business.

Apfa says it wants the regulator to consider “radical” reform of transfer value analysis rules so it is easier for advisers to support customers who want to give up guaranteed benefits following the introduction of the retirement freedoms last year.

Apfa says: “We believe that the FCA should take this opportunity to emphasise that the quantum of the TVA should not be the sole determinant of any decision.

“In fact, we believe there is a case for radical reform – or getting rid of entirely – TVA as the most important determinant in retirement saving decision-making.

“While TVA may be relevant where a client is looking for best value and nothing else, in reality for most individuals in the new pensions regime, other priorities will either take precedence or be just as important.

“The financial advice sector is currently struggling under the burden of numerous rules and regulations and removing the TVA requirements would be a good opportunity for the FCA to demonstrate its commitment to more proportionate regulation.”

The comments were made in response to a consultation from the FCA on potential changes to its rules and guidance in light of the pension freedoms.

The adviser trade body is also calling for greater certainty over liabilities for advisers transacting insistent client business, the creation of an independent appeal body for advisers wishing to challenge FOS decisions, and for the playing field between non-advised and advised sales to be levelled.

Currently, non-advised firms are allowed to receive commission from providers on sales, while advisers are not.

Apfa director general Chris Hannant says: “Pensions have undergone an unprecedented level of change over the last few years and the government has made it clear that good financial advice is at the heart of its pension freedoms. It is therefore vital that the FCA updates its rules to protect consumers and give greater certainty to advisers operating in the new pensions reality.”


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There are 8 comments at the moment, we would love to hear your opinion too.

  1. Until planners and advisers get themselves a better voice, they will continue to be at a dis-advantage when dealing with the regulator, compared to the banks and large providers. I agree with APFA, however I’m not sure APFA’s voice is heard by the FCA

  2. I wonder if it couldn’t be approached from the other side. A TVA report is mainly designed to generate a Critical Yield on the Transfer Value being offered by the scheme concerned. The reason that this is required is that the Trustees of pension schemes can use differing assumptions to each other when they produce ‘their CETV’. It’s strange that some CETV’s when assessed, require such high critical yield investment returns that you have to wonder how ‘Equivalent’ these transfer values really are! It would be interesting to see where they (the Pension Scheme Trustees) can generate these so called equivalent open market returns that consequently produce the often derisory CETV they offer in replacement of the benefits within the scheme.

    If the powers that be set fixed assumptions on pension scheme trustees then all the Critical Yields should consequently be the same from whichever scheme is concerned and would thereby be neutralised and necessarily excluded from the advice equation. Then the other aspects of advice and recommendation, the individual’s financial needs (both now and in the future) and their priorities would be the main criteria and not some exorbitant required critical yield because the Trustees have simply used their maximum and minimum assumptions to skew the CETV to the lowest figure they can get away with. Just an idea.

  3. Come, come Mr Gafney. Hadn’t you heard? APFA’s claiming all the credit for the government having initiated the FAMR.

  4. Getting rid of the TVA is a poor idea. It’s all very well for a scheme member to say they value flexibility but without a TVA it’s not possible to show them the potential cost of that feature – and if you don’t know the cost, it’s impossible to identify the value.

    Client: I want flexibility
    Adviser: Even if it cuts your pension in half?
    Client: Er, I may want to rethink my earlier position

  5. Agreed – TVA requires an overhaul in the post pensions freedom world. The starting point that a transfer is always unsuitable is overly strong and leads to higher advice costs (to cover regulatory risk). Wider issues such as ill health, alternatives to the spouse’s benefits in the scheme or inheritance could prevail. For those close to taking benefits the current TVA is irrelevant and alternatively there should be available a comparison with an equivalent annuity and the use of drawdown critical yields.

  6. It would help if the FCA started at the beginning of the problem.
    Product illustrations need to be scrapped. They are an embarrassment to the industry.

    At least with TVAS work a consumer ‘should’ have a somewhat more competent adviser holding hands.

  7. Actuary Nigel Chambers from CTC believes that to remove the requirement for a TVA would be wrong, regardless of a person’s motivation for seeking a transfer. The reason for this is that there is a large variation between schemes in the value they may offer for essentially the same benefits, some are generous, but others, for example where schemes are in deficit may be scaled down. An essential starting point is to judge whether good value is being offered, or not. With that knowledge a customer, and their adviser, can then have an informed discussion on the other options available.
    He also agrees that the current form of TVA is not always appropriate and would like to see the analysis extended to show the critical yields if drawdown is to be used rather than an annuity purchased.There are many situations where a transfer from a Defined Benefit scheme would be in the customers interest as to get the full benefit of inflation linked pensions guaranteed for life it is necessary for someone to live well beyond the average life expectancy. Drawdown will often give both additional flexibility and greater cash value.

  8. Comparing a DB scheme (using it’s CY/TVA) against a DC scheme is comparing apples and pears and therefore whilst the CY is indeed important, it is simply trying to align a DB scheme to a DC comparison.

    In reality, the TVA doesn’t really reflect the transference of risk (other than via the CY) and the CY doesn’t reflect the potential value of the new freedoms (e.g. transference of wealth, ability to take ‘tax free’ withdrawals using a clients Personal Allowance etc etc).

    Placing too much focus on the CY therefore often misses the point however the CY is important in helping establish the investment risk transferring to the individual.

    In reality, a person transferring a DB scheme isn’t doing it because they think they will get a better income elsewhere, it’s likely to be for any number of other reasons, reasons which potentially cannot be ‘monetised’.

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