Pension Transfers and Regulatory Risk

So the FCA have turned up the heat BIG time on pension transfers with their latest publications on transfer advice. The proposals aim to help consumers achieve better value from their pensions and to improve the quality of pension transfer advice.

Among the issues covered is the question of what constitutes advice, and a proposal to introduce so-called ‘abridged advice’, which enables financial advisers to ‘triage’ pension transfer cases – i.e. provide limited advice without this falling under the umbrella of regulated advice. Model Office now has a Pension Transfer guide covering all these issues and more for all our RegTech users available within their Your Promise regulatory dashboard. 

What is the FCA proposing on pensions?

In its update, the regulator:

• proposes a ban on contingent charging for pension transfer advice (when advice may create conflicts of interest, as a financial adviser only gets paid if a transfer goes ahead). There will be exceptions to the ban, for instance where consumers have specific circumstances that mean a transfer is likely to be in their best interests
• provides an update on the work it has been doing on non-workplace pensions
• publishes the final policy statement for the Retirement Outcomes Review
• Abridged advice will allow firms to provide a truncated (and cheaper, theoretically) advice process (including full KYC and risk assessments but excluding the need for APTA and TVC) In our opinion this is a positive as could lead to other areas of need e.g. income protection or critical illness cover

The FCA also aims to address the conflicts of interest which arise where a financial adviser advising on a pension transfer stands to receive ongoing fees. In some cases, these fees can be paid for 20-30 years following the transfer. The new proposals plan to require advisers to demonstrate why any scheme they recommend is more suitable than the consumer’s workplace pension scheme.

Anyone wanting to comment on the proposals has to do so by Wednesday 30 October. You can:

• Complete the online response form
• Email your responses to cp19-25@fca.org.uk or
• Write to: Sandra Graham and David Berenbaum, Financial Conduct Authority, 12 Endeavour Square, London, E20 1JN

Feedback statement on discussion paper on effective competition in pensions

In tandem with the new proposals, the FCA has also published a feedback statement on its Discussion Paper on effective competition in non-workplace pensions. 

In its update, the FCA outlines a package of potential measures to protect consumers. These potentially include:

• Requiring providers to offer one or more investment solutions
• Reducing charge complexity
• Increasing transparency

The FCA is keen to get feedback from interested parties and explore any alternative approaches they might suggest. The Authority will then consult on new rules for non-workplace pension schemes in early 2020.

The FCA has also published its final rules and guidance on the final tranche of remedies arising out of the Retirement Outcomes Review, including the introduction of investment pathways.  This change is designed help consumers who enter drawdown to make investment decisions that meet their needs in retirement.

What can you do to meet FCA requirements?

The new guidance and proposed new measures set out updated rules for anyone advising on pension schemes.

Firms then need to ensure they know when advice is advice; we have a blog on this you can review. Plus they need to ensure suitability and all client needs are met which also means taking PROD into account involving client segmentation and understanding the product providers target market criteria.

Also Ensure your financial promotions comply with the FCA COBS 4.2 rule

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