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Compliance insight: FCA’s pension transfers rules changes

Steve Bailey, director of compliance firm ATEB Consulting, provides some practical guidance for advisers firms arising from FCA Policy Statement PS15_12

The FCA’s Policy Statement PS15_12 ‘Proposed changes to our pension transfer rules’, finalised the rules about when clients must seek advice and when this must be from a qualified pension specialist.

The document can be downloaded here.

The Pension Transfer definition has been broadened to include all pensions with ‘safeguarded benefits’ and the FCA has brought in a specified activity of ‘advising on conversions or transfers of safeguarded benefits to flexible benefits’.

The FCA states that ‘Safeguarded benefits are primarily benefits in DB schemes but may also be benefits such as guarantees or other promises in other types of scheme. The term is defined in the negative, and referred to as any benefits other than money purchase benefits or cash balance benefits.’

The FCA defines pension conversions as: Conversion of safeguarded benefits into flexible benefits within the same scheme, and; payments of UFPLSs in respect of safeguarded benefits.

Other key changes that firms need to be aware of include:

• A firm providing advice to clients regarding defined benefits transfer is required to have Pension Transfer permissions regardless when the transfer occurs, even when benefits are no longer accruing i.e. at retirement;

• There is a requirement that individuals must receive advice when transferring safeguarded benefits unless the value of the benefit is less than £30,000;

• Pension plans with Guaranteed Annuity Rates (GARs) fall under the safeguarded benefits;

• There is no requirement for an adviser to hold a relevant qualification to provide advice on transfers where the only safeguarded benefit is GARs, however;

• Firms that give advice, where the only safeguarded benefit is GARs, are required to hold a pension transfer permission;

• If a firm does not hold this permission they must apply for a variation of permission;•

• If a client needs to receive ‘independent’ advice, in this context, independent means independent of the employer, or trustees / manager of the scheme;

• The FCA is introducing an exception to the occupational pension transfer rules that will allow transfers out of occupational defined contribution schemes with no safeguards to be pension switches;

• Firms with existing pension transfer permissions will automatically be grandfathered to the new permission.

The FCA also produced Factsheet No 35 ‘Pension reforms and insistent clients’ that provides a reminder of their position regarding ‘insistent clients’. It includes real life scenarios, examples of good and poor practice and reminders of FCA expectations and is a must read. Please see our related article here.

Our View

This is a complex and risky area. Principals and advisers all need to know what they can and cannot do.

Advisers need to be aware they can’t advise on ‘at retirement’ pension transfers or GAR transfers unless they fulfill the requirements above.

Suggested Action

• The individual responsible for compliance should read the document thoroughly.

• If your firm is affected by any of the issues then review your policies, processes and procedures, and decide whether you need to vary your FCA permissions.

• If you need to vary your permissions, ensure no business is written before permissions are granted.•

Understand any PI implications.

Visit ATEB Consulting website


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