Commenting on the expected publication of the FCA’s consultation on pension transfers today, Jon Hatchett, Head of Corporate Consulting, Hymans Robertson says: “The current advice framework is not fit for purpose in a freedom and choice world. The FCA’s review should tackle three areas. First, fully protect the interests of DB scheme members by ensuring they receive quality information and advice, steering them away from the murkier corners of the pensions and savings industry where they could be exposed to fraudulent investments or rip off charges. Second, we need to ensure members are informed about the financial implications of their choice, rather than the current artificial test which is a legacy from before 2015. Finally, I would also like to see a system that takes fair account of members’ reasonable preferences. ‘Freedom and choice’ was all about giving individuals more freedom over how to take their benefits, and they are entitled to that freedom to make their own choices.”
Malcolm McLean, Senior Consultant at Barnett Waddingham, said; “The FCA is clearly trying to walk a bit of a tightrope in this tricky area of pension transfers.
“The proposals are designed to increase the quality of advice given to consumers, provide greater consumer protection and give firms greater clarity about the regulator’s intentions. At the same time the FCA is at pains to point out they would not wish to drive firms out of the market, which any over-prescriptive regulation might have the potential to do.
“The redefinition of the starting point for considering whether the transfer would be in the best interest of the consumer is rather wishy – washy and does not appear to change the emphasis overmuch.
“The important point, however, is the FCA is not dismissive of DB to DC transfers per se. The introduction of pension freedoms has changed the environment quite substantially compared to the past. In some cases the transfer can be of value to the member, taking into account other factors such as the need for income, life expectancy, family needs and so on. Partial transfers also have much to commend them which allow members to take their benefits in a way which suits them without taking on all the risk of a full transfer.”
James Walsh, Policy Lead: EU & International, Pensions and Lifetime Savings Association, commented: “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 ensure savers understand the losses they could suffer by leaving defined benefit schemes. We know that transferring out of a defined benefit scheme may not be in the members’ interest.
“The new comparison (the Transfer Value Comparator) will help to focus members’ minds. Defined benefit pensions provide scheme members with a guaranteed income for life – irrespective of how long their retirement might be. Therefore, it is essential that this guarantee is not given up without serious consideration and that appropriate financial advice is taken before any decisions are made.
“The consultation paper also includes some important details – for example – on the assumptions used for revaluation and indexation of DB schemes. We look forward to working with the FCA on these points.”
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