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New rules for UK pension transfers

Changes outlined for qualifications, guidance and advice models


The Financial Conduct Authority is taking forward all but one of its proposals aimed at improving the quality of pension transfer advice, some of which come into force with immediate effect.

The rules set out how pension transfer advice should be provided to consumers where they are considering giving up safeguarded benefits, primarily for transfers from defined benefit (DB) to defined contribution (DC) schemes.

The consultation followed an October 2017 report that found only 47% of advice on DB to DC transfers was suitable.

Pension transfer specialist qualification

Pension transfer specialists (PTS) will need to hold the Level 4 qualification for providing advice on investments no later than 1 October 2020.

The UK watchdog believes the requirement to hold both the ‘pension transfer specialist’ and ‘advising on investments’ qualifications will “ensure advisers have sufficient knowledge to assess the suitability of a transfers, including the risk, returns and changes of the proposed scheme and underlying investments”.

The regulator is also making changes to the appropriate exam standards for the PTS qualification. These will reflect the FCA’s updated rules and guidance, as well as more widespread changes to the pensions environment.

In addition, some consultation respondents suggested raising the need for specific continuing professional development (CDP) requirements for pension transfer specialists.

The FCA stated that it is considering this issue in response to the feedback.

Advisers working together

When advising on a pension transfer, the proposed destination of the transferred funds must be taken into account.

This is especially true when there are two advisers involved in the process.

The FCA emphasised that its rules do not prevent two separate advisers providing the pension transfer advice, but said it must be made absolutely clear to the client.

“[They] should be able to understand the roles of the two advisers, as well as their respective charging structures, and how to make a future complaint about the services provided by either of the firms.”

The regulator acknowledged the concerns raised by respondents about two advisers being involved in the transfer process, but said that “effective two-adviser models help with the supply of advice in the market”.

“They also allow advisers with existing clients to maintain their current relationship, while outsourcing the pension transfer advice to a specialist.”

Investment triage

The purpose of triage is to give customers sufficient information about safeguarded and flexible benefits to enable them to decide whether to take advice on the transfer or conversion of their pension benefits.

The FCA “agrees that triage can be useful; for example, when used appropriately it can prevent consumers from paying advice charges unnecessarily”.

The danger lies when some forms of triage were “straying into the provision of personal recommendations, rather than generic information”.

As a result, stricter perimeter guidance on triage will be introduced.

The FCA said it is “explaining where the boundary between advice and guidance lies – we are not moving it”.

“Where a reasonable observer would view the adviser as presenting a recommendation as suitable for the customer, or based on a consideration of their circumstances, then this must be treated as a personal recommendation.

“We cannot exercise discretion on this,” the FCA said.

Therefore, “it remains our view that guidance services, such as triage, should be educational and present a balanced view of the advantages and disadvantages of transferring”.

Client attitude to risk

Current risk assessment tools focus solely on attitudes to investments, overlooking “the very different risks from clients giving up certainty of income” the watchdog said.

As a result, the FCA will clarify its expectations around how advisers should consider risk attitudes to safeguarded and flexible schemes.

A few respondents were concerned that consumers would be overloaded with information at outset, but the FCA said that a “robust assessment of the client’s attitude to transfer risk in an essential part of the advice process”.

The regulator added that it is working with The Pensions Regulator (TPR) to consider ways in which scheme members can receive clearer messaging about safeguarded benefits that they might be considering giving up.

Negative recommendations

Firms will be required to provide a suitability report to clients, regardless of whether the advice is to transfer or not.

“Where the client is advised not to transfer, the suitability report provides them with a lasting record of why remaining in a safeguarded benefits scheme is the most suitable outcome for them,” the FCA stated.

Some firms responded that the additional requirement would add significantly to the cost of providing advice, which would be passed on to consumers. Others were concerned that it could deter some people from seeking advice and make it unaffordable for others.

The FCA added that “the report provides the adviser with a record which should help them if there is a future dispute”.

Pension increase assumptions

The FCA is to change to assumptions used where minimum (collars) and maximum (caps) rates apply to inflationary increases.

To prevent pension increases from being overvalued, firms will have to assume fixed rate increases at the collar, where the collar is above the relevant retail or consumer price index rate. For caps it would be below the RPI/CPI rate provided by the scheme.

Some respondents offered more complex solutions, but the FCA said that may increases costs for some firms.


The guidance on two advisers working together and assessing attitudes to transfer risks, as well as the requirement to prepare a suitability report in all circumstances, come into force immediately.

Changes to the perimeter guidance on triage come into force on 1 January 2019.

The revised pension increase assumptions must be used by 6 April 2019.

The remaining changes, which cover the pension transfer specialist qualification and appropriate exams standards, will come into force on 1 October 2020.

Pension transfer definition

The one proposal that was not taken forward was a change to the definition of pension transfer to include reference to safeguarded and flexible benefits.

“Our intention was to simplify the existing definition and remove from it transfers of non-safeguarded benefits, which require different protections,” the FCA said.

“We decided not to proceed with our proposal to amend the pension transfer definition at this time. The issues raised during consultation showed we had not achieved the simplification and clarity that we had intended.”

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