CITY regulator the Financial Conduct Authority (FCA) has published proposals to ensure consumers are given the best advice when it comes to taking money from their pension pots.
In a consultation paper it has told firms that outsourcing pension transfer advice can only be suitable when the destination of transferred funds is also considered.
The FCA guidance is for firms which outsource their defined benefit (DB) transfer advice but continue to advise on what happens to a client’s money after they have completed the transfer.
When one firm outsources to another because it does not have permission to advise on transfers, both firms must “liaise to ensure the overall recommendations are suitable and to avoid any disconnect”.
Any transfer advice, it said, could only be suitable if it considered all parts of the transfer.
The FCA said: “In practice, the assessment of suitability on the transfer cannot be done without consideration of the destination for the transferred funds and vice versa.
“Therefore in this scenario, although the firms are responsible for different elements of advice given to the client, they will need to liaise to ensure the overall recommendations are suitable and to avoid any disconnect.”
The regulator said its proposals aimed to reflect the current environment and the increase in demand for advice on pension transfers.
Consumers now have considerably more options to access their pension savings than they did when pension freedoms were introduced in April 2015.
This — combined with more recent changes to the financial environment — have led to historically high levels of transfer values.
The FCA wants advisers to take into account a client’s personal circumstances and financial position before making a recommendation on whether they should give up a guaranteed income from a defined benefit (DB) pension scheme — those which pay out a secure income for life, along with an annual increase.
This will replace the current transfer value analysis with a comparison to show the value of the benefits being given up and introducing guidance on the role of a pension transfer specialist.
As a package, the FCA said its proposals will ensure that advice fully takes account of an individual’s personal circumstances so that consumers make the right decision for them.
Christopher Woolard, executive director of strategy and competition at the FCA said: “Defined Benefit pensions, and other safeguarded benefits such as guarantees, are valuable so most consumers will be best advised to keep them.
“However, we recognise that the environment has changed significantly, so we want to ensure that financial advice considers the customer’s circumstances in full and recognises the various options now available to them.
Woolard added: “Our new approach should better equip advisers to give the right advice so that consumers make well informed decisions.”
The measures come as the FCA also investigates concerns surrounding alleged mis-selling in the pension transfer market — an investigation that is thought to involve up to 100 firms.
Meanwhile, the FCA is to take on responsibility for regulating claims management firms — a move announced in the Queen’s Speech.
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