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Time for the FCA to be honest on DB transfers

The FCA needs to step in with clearer rules to cut through the DB transfer noise

When the news broke last week that Intelligent Pensions had “agreed” with the FCA to suspend defined benefit transfer advice, I must admit to being a bit taken aback.

Intelligent Pensions are often found to be gracing industry panels on the subject of pension transfers, and consistently have articulate things to say about the ongoing challenges this market faces.

I was not the only one who was sold on Intelligent Pensions. Considered a specialist, many firms outsourced their DB transfer business to the firm. The figures say it all: Intelligent Pensions has processed more than 8,000 transfers in the wake of pension freedoms. This is in the context of the lowball estimate from The Pensions Regulator of 80,000 DB transfers carried out in the last year.

It is difficult to draw any conclusions at this stage about what the FCA has taken issue with. Intelligent Pensions remains tight-lipped, but the inference is that the impact of one technical issue can be magnified given the volumes of business involved. Hopefully the truth will out in time, if only to help other advice firms stay on the right side of the regulator.

At the same time, there is a groundswell of opinion that the starting point that transferring out of a defined benefit scheme is mostly, if not always, unsuitable needs to be revisited.

FCA steps up scrutiny of DB transfer advice

Some of those pushing that argument are in DB schemes themselves, which may have a skewing effect on the debate.

Demand for DB transfer advice is through the roof at a time when less people are able to give it. The regulatory action against Intelligent Pensions and others will only serve to further jangle the nerves of an already jittery advice sector.

Time and again, I hear clarion calls being issued for the FCA to step in and provide at the very least guidance on when transfers are suitable.

It can be easy to blame the regulator, but when a market is as dysfunctional as what we are seeing with DB transfers I cannot help but agree. These latest announcements are welcome, but as actuary Nigel Chambers puts it, two years too late.

It would be helpful if the FCA came out and admitted it was concerned about the DB transfer market, and helped firms with what suitable advice looks like in a post freedoms world.

Using phrases like “multi-firm supervision exercises” belies the problem. Clearly, transfers will not always be suitable, but it seems crazy the FCA is apparently deaf to all this noise surrounding DB transfers.

Natalie Holt is editor of Money Marketing. Follow her on Twitter @Natalie_Holt_MM

 

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Comments

There are 3 comments at the moment, we would love to hear your opinion too.

  1. It is easy to slate the FCA but I am convinced that they are not fit for purpose. There may be reasons but frankly they are so unaware of the problems in the advice market that they have allowed the unscrupulous to prosper. As advice costs so much to deliver, everyone is looking to cut the cost to a level the client is prepared to pay. This really means firms taking a greater regulatory risk to deliver it and indirectly risk to the consumer.

  2. Robert Milligan 15th June 2017 at 3:59 pm

    DB transfers should be STOPPED Completely, the employers scheme was simply funded to pay the member and their legal partner an income for life, and only that, transferring out is farcical, those remaining will be hit for six as the funds roll over

  3. I am an overseas adviser in a very well regulated country and have been concerned for some time about the starting point used by FCA authorised advisers to meet with the the UK regulator’s starting point that a transfer from a DB scheme is likely to be unsuitable. For a member based overseas, the fluctuation in exchange rates and local taxes on pension funds retained in the UK can have a far more damaging effect on the final benefits for the member than factors considered when producing a critical yield figure. Consider this, where I am based during the last ten years the Pound has weakened by 47% versus local currency and the local tax for many leaving their pension benefits in the UK will be at least 30%. I had a client recently with this tax liability, no spouse or children, wanting to retire penalty free at 55 and where the CY came out relatively low. However, even though all the signs pointed to a transfer, he could not look beyond the phrase in the UK adviser’s document saying “a transfer from a DB scheme is likely to be unsuitable”. When I asked the UK adviser to change their wording for overseas transfers, their inference was that they are too afraid of the FCA’s stance on this to do so. How is this acting in the client’s best interests?

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