Just my luck, the week the south got the hottest weather since 1976 I was travelling and doing my usual set of pension seminars with the AJ Bell team in the north and consequently missed it all.
The heat was turned up, however, by the FCA's publication of its consultation paper (CP) 17/16 Advising on Pension Transfers. The long-awaited consultation was published on June 21 and proposed numerous changes to the current regime of advice required when advising on transferring from a scheme involving a guaranteed pension income.
It is an understatement to say DB transfers have been hotly debated in recent months and, indeed, since the advent of pension freedoms in 2015. Since pension freedom rules severed the link between pension saving and the purchase of a guaranteed income, there has been a call for DB schemes to offer at least some level of “freedom”.
Rather than do that, the powers that be decided to go the other way and even put in the need for compulsory financial advice for DB pensions with a transfer value in excess of £30,000.
So now we have “pension freedom” on one side of the fence and “pension patronage” on the other, with a regime that leans very much towards protecting people from themselves. Interestingly, the requirement is just to take advice, the advice does not have to recommend a transfer for the transfer to technically go ahead.
DB transfers are here to stay and there are several factors, both qualitative and quantitative, that need to be taken into account. These can have different levels of importance or priority for different individuals, but all stem from the implications of giving up a guaranteed income in retirement.
I started reading the FCA consultation paper full of hope for radical change. I came away underwhelmed and even wondering if it would make any difference.
The key changes proposed are:
• The regulatory presumption that all such transfers are unsuitable is to be replaced with a statement that, for most people, retaining safeguarded benefits will be in their best interests and that advisers should have regard to this.
• A requirement that all advice should include a personal recommendation (the CP then states: “Most regulated advice on the transfer and conversion of safeguarded benefits is currently given as a personal recommendation”, with a “few cases” not doing so. Essentially the FCA is saying it would introduce something that pretty much everyone already does.
• A rewrite of the pension transfer analysis system requiring the introduction of a "transfer value comparator", which should be used with some form of cash flow modelling. This I think signals a concern that advisers are focusing too much on critical yield through transfer value analysis system (TVAS). It follows on from the FCA announcement published in January.
• As a result of this, TVAS is to be dropped and replaced by something called appropriate pension transfer analysis (APTA), which will allow advisers more flexibility to model potential income scenarios.
