The . While the majority of new rules in this area came into effect on 1 October, this statement covers some remaining topics which the FCA recently consulted on. This includes a ‘triage’ service which advisers might offer clients to help them decide whether or not to seek advice on transferring from their defined benefit scheme. It also explains latest FCA thinking on contingent charging, where individuals pay for advice only if they proceed with the transfer, an approach which the Work and Pensions Select Committee asked to be banned.
Recent Aegon research showed strong adviser support for both an effective triage service and continuation of contingent charging.
Steven Cameron, Pensions Director at Aegon comments:
On the triage service
“We’re particularly disappointed that the FCA guidance on a triage service continues to focus on what advisers “can’t do” within a pre-advice conversation. We’d hoped for a more “can do” focus under which advisers would be clear on how they could discuss which personal circumstances make a transfer more or less likely to be suitable without this being ‘advice’.
“Instead the FCA has added a further “can’t do” to their guidance. Advisers won’t be able to provide clients with the new standardised Transfer Value Comparator, showing the difference between the scheme transfer value and the cost of replacing these benefits with an annuity without this being deemed advice. This is despite scheme trustees being able to offer these.
“We appreciate that the FCA can’t change the Treasury-set boundary between guidance and advice. But with meaningful triage conversations looking extremely challenging without crossing the advice tripline, it’s even more important that the FCA helps firms understand how much can be included in generic material, whether that’s ‘ask yourself’ traffic light questionnaires or information videos.
“Advising on DB transfers is a complex and costly process and an effective form of triage would be hugely beneficial, stopping customers who shouldn’t transfer from incurring significant advice charges. It would also help advisers focus their limited resources on clients most likely to benefit from transferring. This is crucial as demand for advice far exceeds supply.”
Aegon has proposed a ‘traffic lights’ (1) form of triage which it believes is information and not advice and which has received positive feedback from advisers.
On contingent charges
“We welcome the detailed FCA thinking on the pros and cons of contingent charging for DB transfer advice. It has not concluded it needs banned and the key will be allowing advisers to offer their clients a range of payment approaches to meet their mutual needs. Heightened scrutiny from the FCA and compliance teams, coupled with an extended pension transfer specialist role should further reduce the chance of conflicts of interest biasing advice towards transferring.”
On Professional Indemnity Insurance
“Overall, the FCA’s new rules on DB transfer advice are a big step forward. They offer advisers clarity on the FCA’s expectations of best practice and in doing so, reduce the risk of unsuitable advice in future. We’re pleased the FCA has called this out specifically to PI insurers who we hope will accept that in future, there is less justification for inflating premiums or demanding large excesses to advisers in the DB market.
Andrew Tully, pensions technical director, Canada Life commented:
‘Pension transfers have probably been the biggest, and perhaps most unexpected, trend emerging from pension freedoms. This behaviour has largely been driven by record high transfer values and people looking to tailor benefits that better suit personal circumstances. But it has also been driven by employers looking to re-structure their FS schemes or close them altogether.
‘By transferring a FS pension someone is giving up very valuable guarantees which mean these decisions should never be rushed or taken lightly or without the protection of proper regulated financial advice. However transfer values continue to look attractive in many cases. The ability to use the pension freedoms to create a financial plan which works for both the customer and their dependents has strong appeal, especially when you compare the flexibility of combining drawdown and guarantees from annuity, with a traditional FS pension.
‘Despite some recent very poor practices in the market which have rightly been called out, I remain of the view that transferring a final salary pension can work to the customers’ advantage in some circumstances, but for the majority retaining the FS membership will continue to be the best course of action.
‘There are situations where transferring a final salary pension can make sense, but it is without doubt one of the biggest financial decisions you can take in your lifetime. And there is no going back if you transfer if you subsequently change your mind. So take your time, speak to your family, and of course find a good regulated financial adviser.’
Commenting on contingent charging, Andrew said:
‘The fact FCA has kicked any decision around contingent charging down the road shows how complex this area is, and how difficult it is to find a solution which is simple to implement but doesn’t adversely impact consumers ability to find affordable advice.’
Steve Webb, Director of Policy at Royal London, said: “It was always simplistic to say that all the problems around transfer advice at British Steel and elsewhere were due to contingent charging so it is good that the FCA has shied away from a knee-jerk reaction such as abolishing contingent charging.
The plans to make sure transfer advisers are well-informed on investment issues are welcome and should help to avoid consumers ending up with poor value investment solutions.
The biggest disappointment is on triage, where the FCA is largely re-stating its original views. There really does need to be a safe space where advisers can signal that they are very unlikely to recommend a transfer in a particular case without having to go through the entire advice process. This is a missed opportunity to improve outcomes for clients”
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