The immediate headline of the new rules is that the starting point for all advice is that "an adviser should start from the assumption that a DB pension transfer will be unsuitable". The consultation had hinted at a potential softening of this position, but the FCA has decided not to make any change.
There are also changes in how the analysis should be presented to the pension owner. Out goes "TVAS" and "critical yields", and in come "APTA" and "TVC". (It is no surprise that an organisation known as the FCA likes their abbreviations and acronyms!).
Appropriate Pension Transfer Analysis (APTA) is a framework that covers all the relevant points that should be considered when analysing a transfer. It includes financial and non-financial items, as well as highlighting alternative ways someone can achieve their objectives without transferring.
The Transfer Value Comparator (TVC) is an estimate of the amount you would need to replace the pension income you would be giving up, assuming you invest this until retirement and then buy an annuity. The TVC is an attempt to present numbers in a clear and simple manner, and therefore in a way that is easy to understand. However, a defined benefit transfer is complex, and many of the assumptions behind the TVC will not be relevant for every individual.
The consultation headline is that the FCA is asking whether or not they should ban "contingent charging" - this is where an adviser provides advice on a DB transfer, but the adviser is only paid if the individual does go on to transfer. This system introduces a huge conflict of interest for the adviser as the adviser may think the client shouldn't transfer, but the adviser will only get paid if the client does transfer. So, banning it would initially seem sensible, but a consequence of this would almost certainly be the creation of an "advice gap" for those unwilling (or more likely, unable) to pay a potentially significant advice fee from current resources. Hence the consultation.
All of the above points should aid consumer protection, though recent cases such as British Steel highlight that the regulatory structure can still struggle to provide full protection for individuals targeted by unscrupulous people (I wouldn't call them "financial advisers", for they are not worthy of the name).
If considering a DB transfer it is vital to seek out a reputable firm and an adviser with the relevant qualifications and authorisations. If you're reviewing your own position then please get in touch. We can send you a short two page note that reminds you of all the reasons why you shouldn't transfer. Once you've read that, if you still think it might be right for you then we can go on to provide bespoke advice on your pension based on the benefits you have within the pension scheme, the scale of the transfer value being offered, and your own objectives for the future.
