Pension consultants have warned trustees and scheme sponsors about “highly contentious” small print buried in the new FCA guidance on pension transfers.
This suggests that if schemes give personalised illustrations, showing the conversion of a DB pension through a transfer value into an annuity or drawdown, this will be viewed as regulated advice.
Hymans Robertson says it is not clear whether schemes providing illustrative transfer values proactively – for example in standard retirement packs – could fall foul of these rules and have these illustrations classified as ‘an inducement’.
This guidance is contained within the FCA’s Advising on Pension Transfers consultation.
Hymans Robertson partner and head of member options Ryan Markham says: “The guidance published by the FCA looks generally helpful in its aim to help drive up advice standards across the board. But buried in page 82 of the consultation is highly contentious wording which will be of concern to trustees and sponsors of DB schemes.”
He says the guidance makes clear that statutory transfers are fine, but it is not apparent whether schemes could run into difficulties providing an illustrative transfer values proactively in certain circumstances.
He adds: “This issue could have significant implications for trustees and sponsors in what information they can confidently provide to their members to help educate and equip them for retirement.
“It will be especially relevant where schemes provide this information as standard at retirement, or have digital tools which allow members to explore transfer and conversion options on demand.”
He says these new rules cannot be good for members. “If members can’t be provided with these figures we expect greater risk of members simply sleepwalking into DB retirement. They will have no idea of what a transfer could mean for them and therefore no reason to explore their options.
“On the other hand however, if all members can be provided with is a transfer value they will simply see a big number without the context and potentially want to access the cash. It will also put them at increased risk of falling victim to scammers or being preyed upon by unscrupulous advisors.
“Either way, not being able to provide this information feels like a real step backwards and counter to giving members enough information to make well-informed life changing choices.”
He points out that members with DB transfer values above £30k have to take financial advice before transferring. “It feels counter intuitive that providing members with this information could be viewed as advice, given this overriding advice requirement.
“We call for far greater clarity on the proposals and debate across the industry on this issue. The guidance vs advice boundary continues to blur and in a way that isn’t helpful in supporting financial education and quality member outcomes.”
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