The Financial Conduct Authority (FCA) has today published new rules designed to improve the advice people receive when considering transferring their pension, with the policy statement confirming that the regulator is taking forward most of the proposals put forward in March 2018.
Most of the proposals put forward for consultation in March were in relation to transfers from defined benefit (DB) to defined contribution (DC) pension schemes. It proposed further changes to its rules and guidance on advising on transferring from safeguarded benefit schemes.
The changes include a requirement for all pension transfer specialists to hold a specific qualification for providing advice on investment by October 2020, which enables advisers to identify whether a proposed pension scheme and investment solution is consistent with the client’s needs and objectives. Furthermore, the authority has the expectation that advisers will consider their client’s attitude to, and understanding of, the risks of giving up safeguarded benefits for flexible benefits.
The FCA has expressed that the new rules should improve the advice that people get when considering a pensions transfer, including as a result of the pension freedoms.
As part of the consultation, the regulator sought views on whether to intervene in charging structures, which could include the banning of contingent charging, which is when a fee for advice is only paid when a transfer goes ahead. The body also asked about the impact on access to advice due to restrictions on charging models.
However, the responses to the FCA’s consultation confirmed its initial analysis on contingent charging, with the analysis being that contingent charging is not the main driver of poor outcomes for customers.
Supervisory work carried out by the regulator has highlighted a number of other causes of poor advice, and it has announced that further work will be carried out to address these issues.
Commenting, FCA executive director of strategy and competition Christopher Ward said: “These new rules will mean advisers have greater certainty and confidence in what we expect when they offer pension transfer advice.
“We expect our interventions to improve the quality of advice which will help to reduce the number of complaints against advisory firms. We will measure consumer outcomes through our supervisory work.”
Work and Pensions Committee chair Frank Field said: “Pensioners were swindled out of their savings yesterday, are being swindled out of those funds today, and still will be tomorrow. Yet the FCA fails to take effective action. Having seen the fate that befell British Steel pensioners, the Committee called on the FCA to take urgent action to ban contingent charging. Instead, the FCA has buried this in the long grass, even as unscrupulous advisers are circling like vultures around consumers. It’s time the FCA took decisive action to prevent another misselling scandal.”
Hargreaves Lansdown senior analyst Nathan Long stated: “These final rules are incredibly important as it’s crucial that advice in this very complex area is of the highest quality, especially given the regulator’s starting assumption that giving up a defined benefit pension is generally not in members’ best interests.
“The regulator continues to allow advisers to charge fees only in the event of transferring, yet has looked to clamp down on quite how extensive pre-advice conversations on the pros and cons of a transfer can go. An unintended consequence could mean more people being attracted to advisers using a contingent charging model.”