This week (30 July) the Financial Conduct Authority published a package of proposals on pension 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.
Here we summarise the proposed changes.
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
The FCA also aims to address the conflicts of interest which arise where a financial adviser advising on a pension transfer stands to receive on-going 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.
Launching the consultation, Christopher Woolard, Executive Director of Strategy and Competition at the FCA, said that the regulator’s supervisory work had ‘revealed continued problems in the pensions transfer advice market’. The changes are designed ‘to ensure people receive suitable advice and drive down the number giving up valuable defined benefit pensions when it is not in their interests to do so.’
Who does the consultation apply to?
The FCA says that the consultation will be of interest to ‘firms providing advice on pension transfers from DB to DC schemes’, as well as any stakeholders with an interest in pensions and retirement income. These groups include:
- individuals and firms providing advice and information on safeguarded benefits
- managers and operators of contract-based pension schemes and trust-based occupational schemes
- trade bodies representing financial services firms
- professional indemnity insurers
- administrators of pension schemes
- members of pension schemes
- consumer representative groups
- all firms that are required to complete Form E (PII self-certification) in the Retail Mediation Activities Return, or forms FSA031, FSA032 or FIN-APF, should read Chapter 7
The outcome of the consultation will also affect consumers.
What are the next steps?
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 email@example.com 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.
This is a result of the regulator identifying that many consumers are ‘not engaged in pension decisions or aware of charges they are paying’. And because products and charges are often too complicated to compare, there can be a lack of price competition.
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 pension firms do to meet FCA requirements?
The new guidance and proposed new measures set out updated rules for anyone advising on pension schemes.
While these are debated and finalised, there are some steps you can take to live up to the FCA’s expectations. Providing fair advice is one key action. Make sure not just that your advice is fair, but that your financial promotions follow the FCA’s rules.
And deliver on what you promise. Make sure you convert your client care promises into action and can substantiate the claims you make in your promotions.
Ensure your financial promotions comply with the rules
Although these changes focus on advice, the first step in any advice process is often the financial promotion that makes customers aware of your products.
Ensuring your financial promotions follow FCA rules is an essential aspect of providing a compliant service with integrity and good governance built in.
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