In June 2017, the FCA proposed changes to the rules on advice on transfers from safeguarded benefit schemes, mainly for transfers from defined benefit (DB) to defined contribution pension schemes.

The new rules now published include requiring transfer advice to be provided as a personal recommendation that takes account of a consumer’s individual circumstances. They also replace the current transfer value analysis with a requirement to undertake a personalised analysis of the consumer’s options and a comparison to show the value of the benefits being given up.

An additional consultation proposes further changes, which include requiring advisers undertaking pension transfer advice to have the same qualifications as investment advisers. The FCA is also seeking views on whether it should intervene in relation to charging structures given the difficulty in managing the conflicts of interest that exist when providing transfer advice. This could include a ban on contingent charging, which is when a fee for advice is only paid for when a transfer goes ahead.

The regulator says this is a complex area, where any action taken may have an impact on access to advice. The FCA has decided to maintain the position at this stage that an adviser should start from the assumption that a DB pension transfer will be unsuitable. This is to reflect the high proportion of unsuitable advice seen in supervisory work and need for further consideration of how transfer advice should be paid for.

The FCA says it should be noted that the existing guidance on the starting assumption does not, however, prevent an adviser from recommending a transfer where this is considered suitable for the consumer.

Christopher Woolard, FCA's executive director of strategy and competition said: 'Defined benefit pensions are valuable so most people will be best advised to keep them.  However, where people are considering a transfer, it is vital that they get good advice to enable them to make an informed decision.

'We are also looking at whether further changes are needed to improve the quality of advice in this area.  In particular, we recognise that there is an inherent conflict of interest when advisers use a contingent charging model so we are asking for views on whether we should ban contingent fees for pension transfer advice. Defined benefit pension transfer advice continues to be a key area of focus for the FCA.'

Frank Field, chair of the work and pensions select committee, welcomed the FCA’s move, saying that ‘as pension transfers surge to unprecedented volumes, the disturbing amount of unsuitable advice in this area poses a clear and present threat to the nation’s pension savings.’

‘Purging the inherent conflict of interest posed by contingent fees is a necessary, although not sufficient, step, towards giving the public the assurance of an unbiased and professional service from the financial advice industry.

‘Dropping the starting presumption that DB transfer is a bad idea would have sent entirely the wrong signal. The FCA should now take the battle against the pension-snatchers further by banning contingent charging on defined benefit transfer advice,’ Field said.

The FCA consultation on improving the quality of pension transfer advice closes on 25 May.

PS18/6: Advising on Pension Transfers is here.

CP18/7: Improving the quality of pension transfer advice is here.

Report by Pat Sweet