FCA looks to tighten up defined benefit transfer protections

Julian Marr reports...

The Financial Conduct Authority has unveiled a range of pension-related proposals with a view to improving the quality of pension transfer advice and helping consumers obtain “better value from their pension”.

The package includes Consultation Paper 19/25, which proposes a ban on contingent charging for pension transfer advice, an update on the work the regulator has been doing on non-workplace pensions and its final policy statement – PS19/21 – for the Retirement Outcomes Review.

The FCA said the proposed ban on contingent charging, which RP covers in more detail here, was designed to protect customers from the potential conflicts of interest that arise where a financial adviser is only paid if a transfer goes ahead.

Executive director of strategy and competition Christopher Woolard said: “We have carefully considered the available evidence on the impact of banning contingent charging, including how we can maintain access to advice for those groups of consumers who would benefit from a transfer. Therefore, the proposed ban would apply unless consumers have specific circumstances that mean a transfer is likely to be in their best interests.”

Highlighting how the FCA’s supervisory work had revealed “continued problems” in the pensions transfer advice market, Woolard added: “By making changes to the way advisers are paid for transfer advice and the other changes to transfer advice we are proposing today, we want to ensure people receive suitable advice and drive down the number giving up valuable defined benefit pensions when it is not in their interests to do so.”

Abridged advice

As well as addressing contingent charging, the FCA is consulting on other measures to change how advisers manage and deliver pension transfer advice. These include introducing abridged advice so firms can deliver low-cost advice to customers who should not transfer, improving how charges are disclosed and setting out how advisers should demonstrate customers’ understanding of the advice.

The regulator has also published a feedback statement on its Discussion Paper on effective competition in non-workplace pensions. “The FCA has found that many consumers are not engaged in pension decisions or aware of charges they are paying,” said Woolard. “Products and charges are often too complicated to compare – leading to a lack of price competition.”

In response, the FCA has outlined a package of potential measures aimed at protecting consumers, which could include requiring providers to offer one or more investment solutions, reducing charge complexity and increasing transparency, so consumers better understand the impact of charges on their savings.

The FCA is seeking feedback and is keen to explore any alternatives to its ideas with interested parties. The FCA will then consult on new rules for non-workplace pension schemes in early 2020.

Investment pathways

The FCA has also published its final rules and guidance on the last tranche of remedies arising out of the Retirement Outcomes Review, including the introduction of investment pathways. “This is a significant intervention that will help consumers who enter drawdown to make investment decisions that meet their needs in retirement,” said Woolard.

“Together these changes should help to address the overarching harm identified in our joint pensions strategy with The Pensions Regulator – that people don’t have adequate income, or the income they expected, in retirement.”