The Financial Conduct Authority’s proposed new guidance on defined benefit transfers does not change an individual’s suitability for a transfer, Wingate Financial Planning chartered financial planner Alistair Cunningham has said.
The current FCA guidance for DB transfers says advisers should work on the assumption that a transfer is not suitable. However, in June this year, the regulator proposed to remove the existing guidance that a transfer is not suitable.
“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,” the FCA said in its consultation paper.
“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.”
Following the publication of the consultation, Cunningham, speaking at the Festival of Financial Planning in Birmingham, 7 November, said it was reported in the press that the new guidance “alleviated some of the barriers for transferring out”. However, he believes that it proposed “pretty much the same thing”.
“They reinstate the assumption that it’s not in the clients best interests, and the only subtle change is that they are essentially removing the assumption that it is not in an individuals’ best interests. My view is that if a transfer previously was unsuitable, I don’t think there is anything in CP16/17 [the consultation paper] that would suddenly make it a suitable transfer,” he said.
Furthermore, he noted that there has been an increase in demand for DB transfers, as there has been a perception that has been given that transfer values are high. “In reality, the nature of preparing a transfer value is that it has to be actuarially fair, but there is no doubt that what is being offered is greater today than it was five years ago.”
He also said that for schemes, offering a DB transfer to members is quite an inexpensive way of moving liabilities from the scheme.