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Unravelling FCA Policy Statement PS18/20 – Pensions Transfers

ATEB Consulting’s Steve Bailey looks at the key points in the FCA’s ‘Improving the quality of pension transfer advice’ paper

Hard on the heels of the rule changes that took effect from 1 October 2018, came the final (for now) piece of the jigsaw of rules and pronouncements that the FCA has been working on for the past year or two.

We know that the regulator is now embarking on a huge data gathering exercise with all firms holding transfer permissions and is likely to revisit the thorny topic of contingent charging, but meantime, Policy Statement PS18/20 – ‘Improving the quality of pension transfer advice’– closes a few outstanding aspects with some further rule changes and guidance. Here is our summary of the key points.

Pension Transfer Specialists (PTS)

The qualification requirement to be a PTS is to change. In future, a PTS must hold the Level 4 qualification for providing advice on investments as defined in the RDR, in addition to the PTS qualification (ApEx21), before they can advise on or check pension transfer advice. The qualifications must be in place by 1 October 2020 at the latest. Meantime, firms should bear in mind the obligation to ensure that individuals are competent for the role they undertake.

In addition, the PTS qualification exam standards are being changed to reflect the updated rules and guidance as well as wider changes in the pensions area, including pensions freedoms. For those individuals who have the qualification under the current syllabus, CPD and other personal development should ensure gap fill requirements are satisfied.

Consideration of the target plan

The FCA has reconfirmed that transfer advice must take account of the proposed destination of the transfer, including the plan and the intended investments.

If advice is to be provided to a client who wishes to self-invest, the same rules apply, the adviser must obtain all the relevant target plan/fund details from the client before advice can be given.

Two advisers

Where two advisers/firms are involved, there should be appropriate due diligence done on each other, an adequate agreement in place covering roles and responsibilities and close liaison between the firms in each case dealt with.


In order to avoid any triage or filtering process being considered as regulated advice/personal recommendation, inadvertently or otherwise, the process should be informational, generic and should not express or imply any view on whether the client should transfer or not. The process is to enable the client to make an informed decision as to whether to proceed to take formal advice or not.

Transfer Risk

There is a need to assess the client’s attitude to Transfer Risk, which is distinct from investment risk.

Negative recommendations

Where a client is recommended not to transfer, it has long been the case that the recommendation had to be confirmed in writing. In future, a Suitability Report will be required.

Contingent Charging

Discussion on contingent versus non-contingent charging continues. The FCA has decided not to ban contingent charging for the moment as doing so is not straightforward and it is recognised that there would be some potential adverse consequences of such a decision. However, firms are reminded that contingent charging represents a conflict of interest and must be managed in an appropriate manner to any negate adviser bias to recommend a transfer.

Our View

The upgrading of the PTS qualification requirement can only be a positive step.

With regard to the target plan and two adviser aspects, the policy statement merely reconfirms or formalises existing rules and guidance.

Triage? We agree.

The FCA has provided some (pretty vague) guidance on what transfer risk is but little guidance on how it can be done. There are, as yet, no tools available to assist with this, so far as we are aware. We are working on a transfer risk tool – watch this space.

The controversial aspect of contingent charging. This is a very difficult topic, with strongly polarised views held around the industry, some in favour of a ban and some not. Looking at it objectively, there are undoubtedly strong arguments for a ban and equally strong arguments against. We can understand why the FCA has kicked this one down the road. BREXIT looks easy compared to this problem! But the conflict of interest associated with a contingent charging model is real and needs to be addressed.

Suitability reports for negative recommendations

The ‘new’ requirement to do a suitability report for negative recommendations is not really new in our view. It really just clarifies a contradiction in the current rules which, on the one hand, say that a recommendation not to transfer must be confirmed in writing, while not prescribing a suitability report, but in other places require a suitability report to be issued whenever a personal recommendation is made – and advising a client to not transfer is a recommendation!

Whatever the contradictions in the rules, we always took the view that a suitability report is the best way to inform the client of a recommendation not to transfer and why that conclusion was reached. Going forward, a suitability report will be required.

Action points

• Read the policy statement for further detail and to see the final rules;

• Ensure that all PTSs are competent and suitably qualified now and that any who do not have the investment qualification take steps to gain it as soon as possible and, in any event, no later than 1 October 2020;

• Consider how you will assess transfer risk;

• Review any triage process against the guidance;

• Ensure that any negative recommendations are confirmed in a suitability report;

• Consider how to address and manage the contingent charging conflict of interest if applicable.

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