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FSA warns on protected rights’ advice

Firms must ensure they give consumers suitable advice about transferring built-up National Insurance rebates into self-invested personal pensions, says the FSA.

From October 1, consumers can contract out of the state second pension into a Sipp and transfer existing rebates from a personal pension into a Sipp.

The FSA says it expects firms to ensure that any advice around these decisions is suitable and based on an assessment of customer need.

The regulator says this includes determining whether there is a genuine need for the investment flexibility and control associated with a Sipp, a clear explanation of the costs involved and how the recommendation meets a customer’s needs and attitude to risk.

FSA head of retail policy and unfair contract terms Andrew Sykes says: “Decisions relating to contracting out of the state second pension or transferring pots of protected rights are important and can have a significant impact on people’s retirement income.

“We expect firms to ensure that they make suitable recommendations based on what is best for their customers, including from October 1 when these transfers are made into a Sipp.”

Intelligent Pensions technical director David Trenner says the FSA is right to flag up the issue with advisers. He says: “There will be people that are better off transferring into a Sipp but it is not the best option for everyone.

“If you have got a client with a decent amount of money and they want greater flexibility, then it is probably the right thing to do but if a client has a small amount of protected rights, it may not be the best option. You also have to look at the cost of transferring into a Sipp which may be a little cheaper but it may take five years to recover the costs of transferring.”

Richard Jacobs Pension and Trustee Services managing director Richard Jacobs says it is important for advice to be individual and appropriate but there are bigger issues at play.

He says: “In current times, you would think the FSA has more to worry about. All we are talking about is an investment and charging structure. The regulator has got to get past this notion that Sipps are expensive and realise that they are a lot cheaper than insurance company funds.”

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