The Financial Conduct Authority (FCA) and The Pensions Regulator (TPR) have joint-published a factsheet for savers who have a defined benefit (DB) pension.

The ‘plain English’ guide focuses on issues around DB pension transfers, emphasising that both the FCA and TPR believe that it will be “in most people’s best interests to keep their DB pension”.

After initially clarifying the key differences between DB and defined contribution (DC) arrangements, the guide goes on to outline the various risks associated with transferring away from DB.

In particular, it highlights the loss of a guaranteed lifetime income and protection of your investments, as well as the additional costs that a member may have to bare in a DC scheme.

It also identifies specific types of savers who are least suited to a pension transfer, including those who have only one pension income; those who have dependants that could benefit from a guaranteed income rather than a lump sum; and those whose needs are already met by a DB scheme, and therefore simply “don’t need to take investment risk”.

TPR chief executive, Charles Counsell, added: “Leaving a DB pension is one of the most significant financial decisions savers can make and so our joint factsheet is a really important tool to alert them to what they may lose if they take this step.

“For most, switching from a DB scheme is unlikely to be in their best long-term interests.

"They may lose a guaranteed retirement income and pension protection if an employer goes bust.

“Savers should not rush their decision and should seek FCA-regulated advice first before making a move that can’t be reversed,” he added, also reiterating that those with a transfer value of over £30,000 must by law get advice before moving their funds.

This advice is echoed in a secondary factsheet, also produced by the FCA and published today (5 June), which guides members on what to expect from the pension transfer advice process.

It calls on savers to utilise the free guidance available from services such as The Pensions Advisory Service, as well as emphasising the importance of also seeking an adviser that is specifically authorised by the FCA.

In line with new regulatory updates also published today, the guide informs savers that from 1 October 2020, they should expect to pay the same amount for full advice, whether or not they go ahead with the transfer.

It also raises the new offering of abridged advice, warning savers, however, that under abridged advice, if an adviser cannot confirm that a transfer is unsuitable, they can only give a statement explaining they cannot make a recommendation.

Furthermore, this offering does not allow an adviser to give confirmation that you have taken transfer advice, and therefore may still require full advice for confirmation anyway, the facthsheet warned.

The FCA has also outlined what good advice looks like, emphasising that members should expect a written report after taking full advice, that clearly states their options, as well as the reasoning and risks associated with this.

It also links back to the video series previously published by FCA to support members through the DB pension transfer process.

Share Story: