The FSA has confirmed changes to the way pension transfers are calculated in a bid to make it more difficult for advisers to recommend an investor quits their defined-benefit scheme.
In February, the regulator outlined plans to change the way pension transfers from defined-benefit to defined-contribution schemes are calculated in a move expected to prevent benefits being undervalued by up to £20bn.
FSA director of conduct policy Sheila Nicoll (pictured) says: “In the vast majority of cases someone in a defined-benefit pension scheme will not be better off transferring to a personal pension.
“The new assumptions will make it tougher for advisers to make the case for a transfer. As a result of these new rules, we would expect the number of pension transfers to decrease, leaving pension scheme members better off.”
The final rules contain amendments to the way advisers must value peoples’ benefits when analysing a pension transfer.
The original consultation recommended advisers use an RPI-linked annuity rate when undertaking transfer value analysis for CPI-linked benefits. However, the FSA says a “significant” number of respondents were opposed to this because it would overvalue the benefits members would be giving up.
The regulator has now decided to allow CPI-linked benefits to be valued using a CPI-linked annuity rate instead. It says this will more accurately reflect the benefits members would be giving up.
The FSA has also withdrawn a proposal to value LPI-linked benefits in the same way as RPI increases. RPI-linked benefits will continue to be valued using RPI-linked annuity rates.
The FSA will issue a consultation on how CPI and LPI-linked benefits should be valued later this year.