The Financial Conduct Authority and The Pensions Regulator have published new guidance for employers and trustees on the help they can give members with DB transfer options.
LCP partner Steve Webb says this clarification providers “welcome clarity”.
This guidance was published yesterday, as as the FCA finalised its guidance on regulations regarding transfers from DB schemes. This takes forward the DB transfer guidance which FCA consulted on in the middle of 2020.
In an earlier consultation the FCA had sparked concerns that pension schemes who provided members with modelling tools, allowing members to compare their entitlement within the scheme alongside potential annuity and drawdown options, could be crossing the line into providing regulated financial advice.
In response, some law firms even suggested that providing members with unsolicited transfer value quotes could potentially be interpreted as advice.
However, the new document makes clear that:
- Schemes can provide transfer value quotes (CETVs) including to members who have not requested one
- Schemes can provide an estimate of the annuity which a member could buy today if they were to transfer out today; but drawdown illustrations are not allowed as they are regarded as too speculative
- Schemes can appoint IFAs to help members make good choices
LCP says the document recognises that schemes “may be in better position to identify a suitable firm with the relevant permissions and better able to negotiate good terms with that adviser than individual employees or scheme members”.
Commenting, on this clarification Steve Webb, a partner at LCP says: “In a world of pensions freedoms, scheme members can have a wide range of options both within their existing DB scheme and by transferring out. Most forward-thinking trustees and employers want to help scheme members to make good choices but some are nervous that in doing so they may be crossing a regulatory boundary. This new guidance provides welcome clarity and shows that schemes can help in a range of ways, from appointing IFAs for members to use to providing illustrations for members of their options within and beyond the scheme. This should lead to a growth in the number of trustees providing help and guidance for members around their pension options”.
Andrew Tully, technical director at Canada Life adds: “Today’s finalised guidance gives advisers a clear steer what the FCA is expecting around defined benefit transfers. While many people will be better off remaining in their defined benefit scheme there are some specific situations, such as those in ill-health or heavily in debt, where a transfer will be the best outcome.
“The FCA also highlights the inconsistency of record keeping by advisers and provides guidance on the processes advisers may want to put in place so they can establish whether the DB advice is suitable or not. It is right that we have strong controls in place around this complex part of the market but also recognise there is a demand and need for advice. This guidance will hopefully help ensure we continue to have a functioning DB transfer market while reducing the instances of poor outcomes for consumers.”
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