The FCA is considering reducing pension transfer qualification requirements as the industry grapples with access to advice post-Budget, Money Marketing understands.
The issue of pension transfer advice was brought to the fore after Chancellor George Osborne announced reforms which will grant savers greater freedom over how they spend their retirement pot.
The Government has already proposed mandating advice for defined benefit to defined contribution transfers in the wake of the Budget.
And sources at compliance networks and providers indicate they are expecting the FCA to communicate a relaxation in their interpretation of existing legislation for transfers from occupational DC schemes to drawdown arrangements.
Experts say the change, if implemented, will iron out a long-standing anomaly in the regulator’s pension transfer rules and allow more people to access advice.
But will savers be exposed to greater risks as a result? And are advisers willing to accept the compliance burden associated with this notoriously complex area of the market?
Emails seen by Money Marketing show Standard Life has recently told advisers transfers from an occupational DC scheme “for the purposes of immediately entering drawdown” require the adviser to have the FCA’s pension transfer and opt-out permissions.
It says: “The FCA have indicated that they do consider transfers of occupational pension schemes for the purposes of immediately entering drawdown as pension transfers. Based on their interpretation, any such transfers would require the “advising on pension transfers and opt-outs” permission.
“The FCA have indicated to us that they will communicate to the industry on this point although we remain unclear as to when any new guidance will be published.”
A spokeswoman says: “We are not able to comment on a specific exchange with an adviser but this is an area where we seek clarity.”
It is understood the FCA is considering a move that could see it clarify advisers do not require transfer and opt-out permissions for occupational DC to drawdown transfers.
Money Marketing understands the FCA is considering amending existing rules. No changes have yet occurred, however, and sources say the ongoing review may or may not result in an industry update.
Interpretations of the current rules governing DC to drawdown transfers are understood to have differed across the industry, with some firms viewing such transfers as permissible without transfer and opt-out permissions.
Compliance firms and providers have made enquiries to clarify the situation with the FCA.
A spokeswoman for the FCA declined to comment in detail other than to say the regulator was “aware of the issue” and confirm that no rule changes had yet been enacted.
Experts say the new pension freedoms introduced in the Budget may not be accessible for many if the advice hurdle is too high.
Last month, experts raised concerns mandating advice for DB to DC transfers may mean consumers with smaller pension pots that want to quit their DB scheme may find they struggle to pay for advice.
Now providers say requiring pension transfer and opt-out permissions of advisers working on occupational DC transfers also risks pricing consumers out of the new pension freedoms.
Standard Life head of workplace strategy Jamie Jenkins says: “We support the need for regulated advice for DB to DC transfers. The two are very different and most members, but not all, will be best off sticking with DB. People need protection against transferring for the wrong reasons in these circumstances. But at retirement DC-to-DC transfers, to immediately go into drawdown, are different.
“In the post-2015 world, access to the new freedom and choice is provided via a ‘strengthened right to transfer’. So these at retirement transfers to access the chosen income option should be thought of as the new open market option, while mindful of the importance of protecting people’s right to tax- free cash.
“Occupational schemes are least likely to offer access to the new freedom, owing to trustee concern about fiduciary responsibility, leaving transfer as the only access route. Imposing an extra advice cost will price many out of it – leaving them to go it alone. The Government should consider this impact on the availability of advice.”
Aviva head of policy John Lawson adds: “Certain DC transfers could be exempted. Nest, for example, is a DC scheme so in theory you would need the permission, which seems somewhat excessive when you’re going from money purchase to money purchase.”
Pension transfers are notoriously complex and pose a risk to advisers from a compliance point of view.
Affluent Financial Planning managing director Carl Melvin says any advice regarding pension transfers is priced at a premium because of the complexity of the advice required. He argues whatever the permissions required by the FCA, pension transfer advice is still likely to be expensive for consumers.
“DB is a very different beast to DC and has valuable guarantees in play. So it is key that the advice should only be given by people with advanced qualifications,” he says.
“DC to DC is different because it is money purchase to money purchase. It is just one within a framework of an occupational environment and one is a personal arrangement. So it is much less problematic but you still have to be aware of elements in the occupational scheme which may influence a decision.
“A lot of younger guys who have come from bancassurance might not be that familiar with older style pensions and older style occupational arrangements so it is a question of how do you put in place permissions that protect the consumer and ensure the adviser is technically competent.”
Supply and demand
LEBC director of longevity Nick Flynn says obtaining pension transfer and opt-out permissions is a tough hurdle to cross for most advisers. He says: “The exam is one of the tougher ones and although most of our guys have it and it is not a huge stretch if you are doing this kind of business regularly, if you are not particularly active in the market it is not an easy exam.”
Melvin agrees there are few advisers with the permissions and even fewer willing to advise on small pots, echoing provider suggestions that access to advice could be constrained for some. He says few advisers offer transfer advice because of the compliance risk involved.
“This kind of advice is toxic because even if everything is compliant, honest people will still make bad choices when they are desperate for cash and even if we as advisers say ‘don’t do it’ they will still go ahead and make the transfer,” he says. “So there will be a big problem with advisers being not only able to give advice from a permissions perspective but also being willing to give this advice.”
Greg Heath, managing director, Derbyshire Booth
Some networks insist that any types of transfer be checked first regardless of the type of transfer being done. Issues around permissions create delays on the ground because it results in more business having to be double-checked even though in many cases it can be very simple. Combined with delays from Sipp administrators and so on, advising someone can be held up by months. That is a real challenge if we have someone approaching retirement because we have to tell them we can’t finalise the advice we’ve given until the case has been signed-off by the authorising network.
Lee Robertson, chief executive, Investment Quorum
The problem is that transfers are so easy to get wrong. The public have been given a huge amount of freedom with their pensions and I worry there may be a big rush to take advantage when it would be sensible to take a deep breath and make sure all the options are thought through. The simplest thing to do would seem to be to get the qualification to be safe.
Several providers are reluctant to accept transfers from advisers without G60 pension transfer qualifications, triggered by recent behind-closed-doors comments from the FCA.
This has sparked concern because some firms have been signing off transfers that the regulator may argue should not have taken place.
Meanwhile there are others in the industry that believe the FCA should remove the requirement for specialist qualifications around occupational transfers.
I must declare an interest here having been involved in the design of G60 which was commissioned by the then regulators to prevent those not competent from advising on occupational transfers.
I am not surprised by the view that taking benefits be considered transfers and not vestings. If the client is not at their scheme’s normal retirement date then in my mind it is a transfer; those at scheme retirement date are vestings. It is also important the client receives advice on all of their options. Pensions are getting more and more complex and it is no longer a case of picking a single route. We now have the equivalent of a buffet where mix and match will be the way forward for many.
Therefore, to provide clear advice in this area requires a higher level of competence than diploma level. This will not be a popular point of view but if the regulator slips this on the “too difficult” pile it may regret that decision later.
Equally, the alternative is a full review of pension transfer business. Whether the regulator has the stomach for that is another question entirely.
Rob Reid is director of Syndaxi Chartered Financial Planners