Given the advantages of DB pensions, in the FCA’s view, the proportion of consumers advised to transfer is too high and many of these transfers will not have been in consumers’ best interests. The FCA is also concerned that despite its previous work, too many advisers are delivering poor advice, much of it driven by conflicts of interest in the way they are remunerated, in particular, the practice of contingent charging where payment is only made if a transfer proceeds.
To address these concerns, the FCA is proposing a number of changes as to how advisers manage and deliver pension transfer advice, particularly for DB to DC transfers.
Summary of proposals
Within CP19/25, the FCA is proposing to:
- Ban contingent charging structures for DB transfers and conversions (charging arrangements where adviser charges are only payable where a transfer or conversion takes place) except for a small group of consumers, with specific circumstances who the FCA considers are likely to benefit from a transfer.
- Introduce an 'abridged advice service' to enable firms to provide a low cost alternative to full advice.
- Reinforce existing requirements for firms to consider an available workplace pension as a receiving scheme,
- Improve how initial charges are disclosed, requiring firms to provide a one-page summary with the relevant suitability report and requiring checks on client understanding as part of the advice process.
- Introduce CPD requirements for pension transfer specialists specific to pension transfer advice.
- Require new data to be submitted by firms about pension transfer advice & PII.
- Amend a number of technical areas of its rules and guidance to clarify and extend existing requirements.
This paper is proposing a wide range of changes for pension transfer business. Although this is a consultation we recommend that you start to consider the implications to your business if the changes are introduced as proposed. According to the FCA, many of the changes will come into force within one week of the FCA Board making the final rules.
If you currently use a contingent charging model for pension transfer business, you need to consider the implications of this type of charging structure becoming obsolete.
We are currently reviewing the impact of the FCA's proposals and we'll be submitting a response to the FCA's consultation.
Full details of the above proposals are available via: Consultation: Pension transfer advice: contingent charging and other proposed changes
The FCA has also published a video to help consumers better understand financial advice on transferring out of a DB pension scheme: https://www.fca.org.uk/news/news-stories/fca-publishes-video-help-consumers-understand-pension-transfer-advice