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Pension transfer advice in firing line as FCA issues new guidance

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The FCA has set out its expectations for advisers carrying out pension transfers amid fresh concerns over suitability.

In its latest guidance, published today, the regulator warns conducting pension transfers based solely on a generalised critical yield calculation will not meet their requirements.

The FCA says it expects the likely expected returns on the new investments would need to be looked at in relation to the critical yield, as well as the personal circumstances of the client.

The specific receiving scheme also needs to be considered, including for overseas schemes where UK IFAs should liase with an overseas adviser where necessary.

The FCA says: “We are aware that some firms have been advising on pension transfers or switches without considering the assets in which their client’s funds will be invested. We are concerned that consumers receiving this advice are at risk of transferring into unsuitable investments or – worse – being scammed.

“Transferring pension benefits is usually irreversible. The merits or otherwise of the transfer may only become apparent years into the future. So it is particularly important that firms advising on pension transfers ensure that their clients understand fully the implications of a proposed transfer before deciding whether or not to proceed.”

The regulator stopped short of forbidding advisers from facilitating transactions from so-called “insistent clients”, who want to act against an adviser’s recommendation, so long as the advice is suitable for the individual, the risks and costs are laid out, and it is made clear to the client that their actions go against the advice given.

The regulator has also reiterated its previous advice that advisers cannot outsource responsibility for pension transfer advice.

The guidance says: “A firm without the permission may refer a client needing pension transfer advice to a firm with the permission. However, it is not acceptable for that second firm to claim to be advising on the pension transfer without taking into account the assets in which the client’s funds will be invested as well as the specific receiving scheme.”

The FCA also reminded firms that while individuals who are not pension transfer specialists can advise on transfers, this advice must be checked by a specialist.

Evestor advisory services director director Rohan Sivajoti welcomes the clarification from the FCA and says it hinted at concerns over criminal activity creeping into the pension transfer space.

He says: “It’s not often the FCA sends round notes like this on specific areas directly to my inbox.

“The fact that the second sentence mentions the word ‘scammed’ and is front and centre of their communication does make one think that there could have been a rise in criminal activity surrounding this area. The communication itself is very helpful and is a prudent reminder to advisers that this is very much an area which one must approach with expertise, clarity and a careful nature.”



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There are 11 comments at the moment, we would love to hear your opinion too.

  1. Ah ~ another clarion call from the regulator for advisers to polish up their crystal balls, even though the regulator itself appears to be constitutionally incapable of averting one train wreck after another (start with Connaught and work back), despite having at its disposal all sorts of warning signs, many of them submitted by the very community that it purports to regulate.

  2. Pension transfers are often irreversible?? DB schemes, yep, completely agree but PP’s or platform SIPP’s – how so? These types of pension are nothing more than tax wrappers for standard retail funds but the hoops that need to be jumped through to move then compared to a platform re-reg or Stocks & Shares ISA adds cost to clients.

    The FCA are often guilty of using a broad brush to tackle specific problems, deeming all pension transfers as potential concerns is a case of this just like their issues with SIPPs. As usual the issue will be with cowboy advisers and not with good advisers who are already doing all of this.

  3. Knowing Julian, that the FCA are not accountable for such mistakes and that we will indemnify the clients so badly affected through our levies and fees.

  4. “The FCA expects the likely expected returns on the new investments would need to be looked at in relation to the CY” and the goes on to say “The merits or otherwise of the transfer may only become apparent years into the future”
    What planet are the FCA acually on?
    One of the basisc reasons for transferring a ‘safeguarded pension’ is to gain flexibility and control, in return for giving up the guarantees.
    This means taking risk in returnfor reward, and nobody can predict the future performance of any investment or asset.
    Even the most experienced Actuaries advising the Trustees of a DB scheme can’t do that!
    I really do despair that the FCA have no understanding whatsoever about the concept of risk and future performance. This is probably because none of them have ever worked for themselves, don’t have the relevant PFS/CII exam passes, and are snug in their guataranteed DB pensions where we pay for any future under performance.

  5. Why don’t the FCA start asking questions of the schemes actuaries as it is with them that the problems of DB schemes have arisen by seemingly being incapable of matches scheme assets and liabilities. Until the whole process for assessing the viability of a transfer from a DB scheme is completely overhauled then advisers will always be blamed for something that was not of their making i.e determination of scheme solvency.
    One simple change to make the process more transparent is to assess the CY against the actual solvency of the scheme at date of transfer. This would produce very different outcomes

  6. I can see PI insurers walking away from an open ended liability, the judgement must be based on he evidence at the time, not what might happen in the future. The member exchanges certainty for probability, events such as the Credit Crunch, Brexit, Trump all serve to prove the assumptions regarding the performance of asset classes wrong.

  7. About time and should be rigidly enforced. I write as a former client of a firm of financial advisers still operating in the Manchester area. This firm skinned my DB pension scheme and destroyed my financial security for the rest of my life. My adviser was on the board and is now doing time for fraud ( on another matter) but I have not received a penny compensation.

  8. Given the Pension Transfer analysis at Royal Mail from Final Salary to Zurich – how can anyone have confidence in the FCA or their ” advice”. These Finanl Salary schemes – with their promises under their Trustees Duties ? Is it any wonder no one has confidence in a Paension Scheme when the Governemnt changes the legisaltion to recoup their Tax plus Tax they never paid out I.E Higher Rate Tax – is this legalised theft ?

  9. In my opinion all DB schemes should be scrapped. Why? If you look at China they save more of their income percentage wise than us in the UK. That’s because there is no benefits system to prop them up in retirement. Public Sector (Ponzi schemes) are the same as dole-bludgers scroungers on benefits. People will then have to take responsibility to save for themselves in retirement and taking the burden away from tax payers. As far as the private sector DB schemes they are knackered anyway. So everyone should save for themselves and not burden others with their guaranteed schemes. First to go should be MPs pensions, NHS, police, firemans etc.

  10. Does this mean that if an unmarried, individual transferred a substantial, preserved Defined Benefit scheme & died before vesting that the Inland Revenue would look to Tax their estate? Looks like people are getting ” trapped between a rock & a hard place” ? Potentially losing their pension funds to an ex employer, the Inland Revenue or both……. I believe there has been a “Green” paper recently in Parliament looking at using Corporate Bond rates to establish Pension Transfer Values instead of Gilts……. This will substantially reduce Transfer Values…….No doubt helping the Public Sector purse

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