The Financial Conduct Authority (FCA) has abandoned plans to drop the unsuitable defined benefit (DB) transfer assumption as a result of concerns about unsuitable advice being given in the area.
In a policy statement published today, the FCA said its recent supervisory work had presented “significant evidence of unsuitable advice being provided”.
In a consultation released last June, the financial watchdog had proposed replacing the starting assumption that holds a DB transfer is unsuitable before giving advice with a statement in the regulatory handbook that, for most people, “retaining safeguarded benefits will likely be in their best interests”.
Due to its concerns about the levels of unsuitable advice, however, the FCA said: “We do not consider it is appropriate to change this assumption at the present time.”
An FCA report released in October revealed the regulator deemed fewer than half (47%) of DB transfers it reviewed – where the recommendation was to transfer – to be suitable.
Meanwhile a seperate body of work from the financial watchdog found around half (51%) of pension transfer advice given to British steelworkers was suitable.
In February, RP’s sister publication Professional Adviser revealed the FCA sent 45 advice firms a questionnaire containing more than 50 questions designed to probe the firms for information on pension transfers as part of its ongoing supervisory work. Monday’s policy statement revealed analysis of the resulting answers was ongoing.
TVAS to be replaced
The financial watchdog decided to proceed with other changes outlined in its consultation, including introducing a rule to require all advice on pension transfers to be a personal recommendation and clarifying only pension transfer specialists can give or check pension transfer advice.
Additionally, the current transfer value analysis (TVAS) is to be replaced with an ‘appropriate pension transfer analysis’ of the client’s options alongside a prescribed transfer value comparator, indicating the value of the benefits being given up and the cost of purchasing the same income in a defined contribution environment.
The new rules will come into force on 1 April, though the changes to TVAS will not take effect until 1 October 2018.
FCA executive director of strategy and competition Christopher Woolard said: “Defined benefit pensions are valuable so most people will be best advised to keep them. Where people are considering a transfer, however, it is vital they get good advice to enable them to make an informed decision.”