From October 1 consumers can contract out of the state second pension into a Sipp and transfer existing national insurance 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, in order to help consumers make decisions that are right for them.
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.
The FSA has also published a policy statement confirming that when advising on contracting out into a Sipp, firms need to provide a comparison of projected retirement income from the Sipp versus potential benefits from the state second pension. This requirement already exists in relation to contracting out into ordinary personal pensions.
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 they make suitable recommendations based on what is best for their customers – including, from 1 October, when these transfers are made into a Sipp.
“At the same time, we would encourage consumers to make sure they fully understand the implications of leaving the state second pension or transferring accrued protected rights into a Sipp, to make sure it is the right decision for them.”