DB Transfer Advice
The FCA have published a Consultation Paper to improve the advice requirement covering transfers of safeguarded benefits to defined contribution schemes. The consultation is open for comment until 21 September 2017.
Some of the aspects of DB transfers that the FCA would like to make changes to are:
- The Introduction of a requirement that all advice results in a personal recommendation
- To update Handbook guidance on assessing suitability
- Clarify the role of the pension transfer specialist
- Replace the TVA requirements with a broader assessment of suitability.
Their proposed improvements to the assessment of suitability include:
- A considerations of the income needs of the client and how these can be achieved
- The risk profile of the client in relation to the investments that will be used within the receiving scheme
- The way in which the funds will be accessed at retirement, which is particularly significant following the Freedom & Choice reforms
- The death benefits available
- The wider circumstances of the client.
A particularly prominent area of discussion within the consultation is the replacement of the TVA requirement with a much wider requirement to undertake an ‘Appropriate Pension Transfer Analysis’. This should include an assessment of the client outgoings and therefore income needs and the role of the ceding and receiving scheme in meeting these. A comparison of death benefits on a fair basis, such as on a capitalised basis where one scheme only offers lump sum death benefits. Also, a transfer value comparator should be used, which projects the ceding scheme benefits to normal retirement age, estimates the cost of purchasing those benefits with an annuity and, for those with more than 12 months to retirement, determines the present value needed today to fund that annuity.
The consultation proposes that any shortfall in the current CETV against the equivalent annuity is shown as a discount rather than stating the critical yield required to match the safeguarded benefits.
We await the Policy Statement following this consultation which is scheduled to be issued early in 2018.
17 July 2017