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FCA looks to set new format for TVAS reports

Regulator sets out a new calculation for an “appropriate” pension transfer analysis on how benefits being given up should be valued

Pensions-savings-retirement-piggy bank

The FCA is looking to shake up the way defined benefit transfer value analysis is conducted.

As part of a suitability assessment, advisers are currently required to conduct a TVAS to compare benefits being foregone with benefits available under a new scheme, with the result a critical yield that is needed to match the lost safeguarded benefits.

But the regulator now says following pension freedoms a new overarching requirement to undertake “appropriate pension transfer analysis” which looks at all the client’s options should be introduced.

This, as a minimum, must assess client’s outgoings in relation to income needs, how ceding and receiving schemes will impact upon these, and a fair consideration of death benefits.

In a consultation this morning, the FCA says: “Advisers often focus – in some cases almost exclusively – on the TVAS element rather than making a rounded assessment of suitability based on all relevant factors. In the most concerning scenarios, the TVAS is undertaken first without any knowledge of the client and then made to fit the client’s circumstances.

“In some firms the TVAS is seen as no more than a box-ticking exercise to be completed for compliance reasons.”

FCA proposes scrapping assumption DB transfers will be unsuitable

The new appropriate pension transfer analysis will also include a set format for how benefits being given up should be valued; what the FCA is calling a prescribed transfer value comparator. This will be based on a calculation involving three points:

  • where relevant, a projection of the ceding scheme benefits to normal retirement age
  • the estimated cost of purchasing those benefits using an annuity, and
  • for those more than 12 months from their scheme retirement date determining the present value needed today to fund the annuity

The FCA says: “Instead of determining the required rate of growth, firms must determine an appropriate discount rate to value the amount needed to reproduce the safeguarded benefits, after appropriate charges.

“This discount rate should be appropriate for each client, based on their attitude to risk, irrespective of whether the proposed receiving scheme will involve flexi-access drawdown or an annuity.”

The FCA’s proposal for how transfer value comparisons must be presented to the client.

Specialists in the spotlight

On pension transfer specialists, the FCA has urged firms to make sure they have covered a sufficient number of cases under supervision and have current experience, even though their qualifications mean they can give advice without checking.

It says: “Given the complexities of this area it is our view that the pension transfer specialist qualification alone is not enough to demonstrate competence.”

When this relationship to a specialist is outsourced, responsibility for the advice the specialist checks still sits with the adviser giving the overall advice.

The FCA says further consultation on insistent clients will take place in the coming months.



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There are 3 comments at the moment, we would love to hear your opinion too.

  1. I often wonder, if the FCA is rather confused about what it actually is…..

    I get the sense its a hippo that thinks its a giraffe….

  2. No no, its fighting the IFA and the treasury it own boss in effect. Most IFAs who no what they are doing don not advise transfers on DBS, however the treasury wants to get its hands on liberated pensions. the FCA doesn’t want to fight the treasury (it cant), so much easier to kick the advisers etc

  3. CY is but one part of the strategy but is only relevant if the client is planning on buying an annuity to match the benefits of the DB scheme – in which case, I’d suspect no adviser would ever recommend a transfer.

    In reality, our clients are using the funds to align their income needs to their lifestyle and therefore whilst CY gives an indicator of the CETVs ‘value for money’ perhaps more important is the fact that our TVAS incorporates when the pot will run out (albeit assuming benefits are drawn that match the DB scheme) given an assumed growth rate and plan charges – adding context to the risk the client is really taking.

    Factor in that generally clients are not taking their income on the drip and perhaps don’t need indexation on this element of their plan and even the second figure becomes less meaningful.

    Any DB advice therefore needs to be all encompassing – life and financial planning – factoring in state provision, all their wealth / assets etc – only then can proper context be put on the DB scheme.

    TVAS is one part of that and therefore needs to be put into context (rather than be seen as the driver behind the advice) but – hey – what do numbers really tell us – no one would ever invest if they based their decisions solely on retirement illustrations.

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