In this article, we discuss the Financial Conduct Authority (FCA) position on final salary pension transfers culminating in their consultation paper advising on pension transfers of 21st June 2017.
The pension freedoms (2015) applied to defined contribution (money purchase) pension scheme members and not those in final salary pension schemes. To access the pension freedoms final salary pension holders were forced to action a pension transfer from a defined benefit (final salary) to a defined contribution scheme.
As a result, there was a surge in interest in final salary pension transfers. This increase in demand coupled with the risk high transfer values may encourage consumers to seek to transfer when it may not be in their best interests made the Financial Conduct Authority (FCA) take a keen interest in the pension transfer marketplace.
A prime function of the FCA is to protect the interest of consumers and to ensure they receive the best financial advice given their individual circumstances. Final salary pension schemes offer a number of valuable benefits that should not be given up without serious consideration.
In an effort to ensure consumers receive appropriate advice controls on transfer were established at the outset of the pension freedoms with a requirement to seek financial advice on a pension transfer if the value of a pension fund was £30,000 or more.
Since early 2016 the FCA has been calling in final salary pension transfer client files from selected financial advisers for review. In February 2016 they clarified the rules on so called insistent clients (those who go against a financial advisers advice that they should not transfer) and in August 2016 started a consultation process on the methodology for pension transfers.
In January 2017 the FCA issued an alert reminding financial advisers of the FCA expectations when transfers are carried out. In April 2017 the FCA announced plans to consult on changes to its rules and on 21 June 2017 issued a consultation paper asking for feedback on their proposals by September 2017 with a policy statement to be issued in early 2018 detailing any rule changes.
In parallel (since early 2017) the FCA has requested data on final salary pension transfers from a number of financial adviser firms and have followed up those requests with further discussions and/or visits* to check advice delivered was in accordance with FCA guidelines and in the best interests of consumers.
In April 2017 City Wire reported an information request had revealed that 16 advice firms voluntarily agreed with the Financial Conduct Authority (FCA) to stop activities relating to pension transfers over the past 12 months. It is believed that number has since increased and FCA reviews and visits continue.
The actions of the FCA to protect consumers should be applauded but they will potentially impact on the availability of advice. Not all financial advisers have the relevant qualifications and permissions to advise on final salary pension transfers and, as stated above, a number of those who held permissions in the past are dropping out (at least temporarily) of the marketplace.
Using an adviser without permissions or an intermediary can cause delays and could ultimately increase fees if a transfer is executed. Final salary pension transfers are complex. To avoid delays (and potential mistakes) It is best to choose an adviser who has experience of the final salary pension transfer process.
Given the latest FCA consultation paper (published 21 June), increasing transfer values and the risks involved (to the advisor) of providing final salary pension transfer advice it is possible advisers with the relevant permissions will be less willing to take work referred from other financial advisers in future.
* As final salary pension transfer specialists The Pension Review Service met with the FCA in June 2017. The regulator confirmed that they are happy with our systems, processes and quality of advice and we continue to advise those individuals who may be considering a transfer.
The information in this article does not constitute financial or other professional advice. You should not take action on the basis of this article without seeking regulated independent financial advice that addresses your specific circumstances.