Key Dates

Consultation paper CP17/16 issued on 21 June 2017.

Consultation ends on 21 September 2017.

The FCA expects to publish its new rules in a Policy Statement by early 2018.

The FCA intends to consult separately on the issue of insistent clients later in 2017.

Summary

The Financial Conduct Authority (FCA) has issued consultation paper CP17/16, setting out proposed changes to the requirements for giving advice on the transfer or conversion of safeguarded benefits. Concerns which have led to the new proposals include that current rules do not explicitly allow for the variety of options available to members under the pension freedoms; and that advice has become focussed on the compulsory transfer value analysis (TVA) rather than on a broader assessment of suitability. 

Key points in relation to the proposals are as follows.

Personal recommendation

• A new rule will require all advice on the transfer or conversion of safeguarded benefits (including where the safeguarded benefit is a GAR) to result in a personal recommendation. This will require considering the client's individual circumstances and providing a specific recommendation.
• The FCA Handbook will contain a statement that for most people retaining safeguarded benefits will likely be in their best interests. This will replace existing guidance that advisers should start from the assumption that a transfer will be unsuitable. Instead, suitability of a transfer should be assessed on a case by case basis, starting from a neutral position, with the adviser expected to demonstrate that a transfer is in the best interests of the client.
• To provide a suitable personal recommendation, factors the adviser should consider will include:
• the client's income needs and expectations;
• the specific receiving scheme being recommended and the investments being recommended within that scheme;
• the way in which funds will be accessed following the transfer;
• alternative ways of achieving the client's objectives; and
• relevant wider circumstances of the client.

Role of pension transfer specialist

• The requirement that advice on pension transfers, conversions or opt-outs must be given or checked by a pension transfer specialist will continue. The FCA Handbook will be amended to make clear that checking advice means assessing the reasonableness of the personal recommendation reached by the adviser, including independently assessing the soundness of the basis for that advice and taking into account the client's wider circumstances. The pension transfer specialist will be expected to document the reasons for his/her view and the adviser should take this into account in its recommendation to the client.

Replacement of transfer value analysis (TVA)

• The current requirement to carry out a transfer value analysis (TVA) will be replaced with an overarching requirement to undertake appropriate analysis of the client's options, to be known as "appropriate pension transfer analysis" (APTA). Advisers may consider the detailed approach which is appropriate for each client, but rules will set out factors which should be included as a minimum. 
• An APTA must include a prescribed transfer value comparator (TVC) indicating the value of the benefits being given up, using notional annuity purchase as a proxy to determine the value of the safeguarded benefits. The comparator will be similar to the existing TVA except that, for clients more than 12 months from their scheme retirement date, advisers must determine an appropriate discount rate to value the amount needed to reproduce the safeguarded benefits, after charges. The discount rate should be appropriate for each client and based on their attitude to risk. The TVC must be presented to the client in a prescribed format, comparing the transfer value offered with the estimated current replacement cost of the pension under the transferring scheme.

Overseas transfers

• The consultation acknowledges that the requirements for the appropriate pension transfer analysis (APTA) are likely to mean that more complex analysis will be needed for overseas transfers than for transfers to UK defined contribution (DC) arrangements. It considers it likely that a UK based adviser will need to work in conjunction with an overseas adviser to understand the proposed destination for the client's funds.
• The FCA expects that an APTA concerning an overseas transfer will contain sufficient information to compare financial and tax regimes in the two countries. Advisers should also consider the potential for higher inflation in the receiving country or for exchange rate movements, which might offset higher projected rates of return in the receiving scheme.

Application

• The additional requirements will be restricted to cases where there are potential safeguarded benefits.
• The requirement for a personal recommendation will apply to all advice on the transfer or conversion of safeguarded benefits, including where the safeguarded benefit is a guaranteed annuity rate (GAR).
• The requirement to undertake an appropriate pension transfer analysis (APTA) including a transfer value comparator (TVC) will apply to all transfers and conversions of safeguarded benefits, except where the only safeguarded benefit is a guaranteed annuity rate (GAR).

Date Accessed: 28/05/2022