New proposals over 'gold-plated' pension transfer advice


An assumption used by financial advisers that transferring out of a "gold-plated" pension will be unsuitable for clients could be removed in favour of a more personalised approach under new proposals.

The Financial Conduct Authority (FCA) has made proposals on advice relating to pension transfers where people have certain safeguarded benefits, particularly relating to transfers from defined benefit (DB) to defined contribution (DC) pension schemes.

DB schemes are often described as "gold-plated" as they promise pension savers a certain level of income, such as a final salary pension. With DC schemes, the saver bears the risk as to how much pension income they will eventually end up with.

The FCA has suggested the changes in the light of the new pension freedoms introduced in April 2015. The freedoms give over-55s who are in a DC scheme a much wider choice over how they take their pension pots.

The watchdog said the proposals aim to reflect an increased demand for pension transfer advice and "historically high" levels of transfer values.

In a consultation document, the FCA said: "It remains our view that keeping safeguarded benefits will be in the best interests of most consumers.

"However, the introduction of the pension freedoms has altered the options available and for some consumers a transfer may now be suitable when it wasn't previously.

"We therefore propose to remove the existing guidance that an adviser should start from the assumption that a transfer will be unsuitable.

"This will be replaced with a statement in the handbook that for most people retaining safeguarded benefits will likely be in their best interests and guidance that advisers should have regard to this.

"This will not require an assumption to be made by an adviser."

The FCA said an assessment of suitability should focus on whether a transaction is right for the individual and should be assessed on a "case by case" basis from a neutral starting position and the adviser would need to demonstrate that the transfer is in the best interests of the client.

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."

A recent survey of financial advisers by Royal London found a surge in pension transfers typically worth more than the value of the average home has taken place over the last year.

The mutual insurer found a growth of more than 50% in the volume of transfers out of final salary pensions taking place in the last year, with the most common transfer value lying in the £250,000 to £500,000 range.

The survey found that the vast majority of clients transferring are in their 50s - and the typical cash sum offered is between 25 and 30 times the value of the annual pension given up.

One in four advisers reported that most of the transfers that they deal with are worth 30 to 40 times the annual pension foregone.

Steven Cameron, pensions director at Aegon said: "Consumer demand for transferring out of DB schemes has never been higher and in this complex area, customers absolutely need advice.

"But advisers are currently faced with second guessing what the FCA considers as suitable advice including how to allow for the pension freedoms those in defined contribution DC schemes now enjoy."

Philip Brown, head of policy at LV=, said: "We wholeheartedly agree advice on transfers should be a personal recommendation and strongly support changing how transfer values are presented."

Andrew Tully, pensions technical director at Retirement Advantage said: "There are a huge number of people looking to transfer out of final salary pensions. The attractions are obvious, but there are pitfalls for the unwary."

James Walsh, policy lead EU and international at the Pensions and Lifetime Savings Association, said: "Nearly all (92%) defined benefit or hybrid schemes have received a transfer request in the last six months.

"These proposals go a long way towards ensuring savers understand the losses they could suffer by leaving defined benefit schemes."

Consultation responses should be received by September 21.