The need for reform is critical following the introduction of pension freedoms and the widespread use of auto enrolment pensions, which is creating small pension pots as employees change jobs.

The FCA consultation, CP17/16: Advising on Pension Transfers, has been issued in repsonse to the increased demand for pension transfer advice. Since the introduction of the pension freedoms in April 2015, consumers have more options available to access their pension savings. This has combined with more recent changes to the financial environment leading to historically high levels of transfer values.

The new rules outline the FCA’s expectations of advisers and pension transfer specialists to ensure that consumers receive advice which considers all relevant factors. They build on an FCA alert on advising on pension transfers published in January.

The proposed changes include requiring transfer advice to be provided as a personal recommendation, and replacing the current transfer value analysis with a comparison to show the value of the benefits being given up. Taken together as a package, the proposals will ensure that advice fully takes account of an individual’s circumstances so that consumers make the right decision for them.

Christopher Woolard, executive director of strategy and competition at the FCA said: ‘Defined benefit pensions, and other safeguarded benefits such as guarantees, are valuable so most consumers will be best advised to keep them. However, we recognise that the environment has changed significantly, so we want to ensure that financial advice considers the customer’s circumstances in full and recognises the various options now available to them.

‘Our new approach should better equip advisers to give the right advice so that consumers make well informed decisions.'

The move has been welcomed as current charges are a potential financial drain on smaller pension pots. 

Association of British Insurers (ABI) head of retirement policy, Rob Yuille, said: ‘The FCA is right to look at current advice on pension transfers, as the current process is complex and may still result in poor outcomes for consumers.

‘Protection for consumers remains a priority for long-term savings providers and the industry looks forward to working with the FCA on this matter.’

The proposals include:

• replacing the current transfer value analysis requirement (TVA) with a comparison showing the value of the benefits being given up;
• introducing a rule to require all advice in this area to be provided as a personal recommendation, which fully reflects the client’s circumstances and provides a recommended course of action;
• updating our guidance on assessing suitability when giving a personal recommendation to convert or transfer safeguarded benefits, so that advisers focus on whether a transaction is right for a particular individual; and
• introducing guidance on the role of a pension transfer specialist.

This consultation is targeted at financial advisory firms advising on pension transfers, those acting as pension transfer specialists, pension providers, and those providing software for pension transfer advice. It may also be of interest to employer sponsors of defined benefit pensions, employee benefit consultants, consumers groups, providers of qualifications, providers of professional indemnity insurance and other industry and professional bodies.

The consultation closes on 21 September 2017.

The FCA consultation, CP17/16: Advising on Pension Transfers, is available here