The FCA has published a page on its website concerning its expectations of firms advising on pension transfers. The FCA states that it is aware that some firms have been advising on pension transfers or switches without considering the assets in which their client’s funds will be invested. The regulator is concerned that consumers receiving this advice are at risk of transferring into unsuitable investments or, worse, being scammed.
When discussing its expectations the FCA states that its rules set out what a firm must do in preparing and providing a transfer analysis. In particular, the rules in COBS 19.1.2R(1) require a comparison between the benefits likely (on reasonable assumptions) to be paid under a defined benefit scheme or other scheme with safeguarded benefits and the benefits afforded by a personal pension scheme, stakeholder scheme or other pension scheme with flexible benefits. The comparison should explain the rates of return that would have to be achieved to replicate the benefits being given up and should be illustrated on rates of return which take into account the likely expected returns of the assets in which the client’s funds will be invested. Unless the advice has taken into account the likely expected returns of the assets, as well as the associated risks and all costs and charges that will be borne by the client, it is unlikely that the advice will meet the regulator’s expectations.
The web page also briefly discusses:
- section 48 of the Pension Schemes Act 2015;
- recommendations based solely on critical yield;
- permission and responsibility for the advice;
- insistent clients;
- advice on pension transfers to overseas schemes;
- personal recommendations; and
- advice on pension switches.
View FCA explains expectations of firms on pension transfers, 24 January 2017