Responding to the proposed FCA consultation on DB transfer advice
22 Jun 2017
Jon Hatchett, Partner, comments on the FCA’s proposed changes to advice on pension transfers.
“This consultation is as welcome as it is long overdue. George Osborne threw a curveball at the entire pension industry when he introduced freedom and choice back in March 2014. Over three years, and 160,000 people transferring c£32bn in transfers, later the regulated advice framework is starting to catch up.
There is much to be commended about the consultation. As you would expect there is a focus on protecting individuals, which is crucial given how important pensions assets are to millions. It also clarifies areas muddied by the new freedoms. The clear requirement to provide a personal recommendation is appropriate when you consider that a DB pension often material to someone’s requirement income. The articulation of advisory responsibilities, to be clear who is responsible for supporting people’s decisions, has to be a good thing.
The consultation also starts to reflect the broader landscape post freedom and choice. It recognises that for a minority transfers away from a DB pension will be the right choice. Amongst other things this could be because of tax, inheritance planning, family situation or health reasons.”
Commenting on the technical critical yield transfer value analysis (TVA), Jon added:
“Doing away with the technical critical yield transfer value analysis will be welcomed by many. If you have no intention of purchasing an annuity, requiring hundreds of pounds to be spent on detailed analysis of the costs of purchasing one seems unhelpful. Yet in the transfer value comparison (TVC) we have another three letter acronym that shares more than two letters with the unhelpful TVA. It focuses significant cost and prescribed work on an annuity comparison. Not only that, it seems to suggest advisers must actually ignore what nine out of 10 individuals will choose to do (take tax free cash) and their health status.
“The spectre of pensions mis-selling in 80s and 90s still looms large, as well it might given the poor outcomes for individuals who were missold. It seems unfortunate that the FCA feels required to enforce this, in some situations probably deeply unhelpful and in all situations costly, TVC on the industry. They say themselves that advisers would be expected to provide broader and more helpful comment around it, but why mandate it in the first place?"