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Call for FCA clarification on DB transfers into workplace pensions

7 September 2020

Aegon has called on the Financial Conduct Authority to provide more guidance on when a workplace pension might not be the best for a defined benefit transfer, ahead of new rules coming into place next month.

The retirement specialist said that while it welcomed the proposed guidance, it believes the watchdog should use its consultation to provide further clarity in some areas.

The FCA’s new regulations on DB transfers advice will come into effect on 1 October and include a ban on contingent charging with carve-outs for certain individuals, a new form of abridged advice to streamline the identification of individuals not suited to transferring and strengthened requirement for advisers to recommend transferring into an available workplace pension. The watchdog is also consulting on detailed guidance to accompany the new rules.

However, Aegon pension director Steven Cameron said the group remained concerned over the emphasis the FCA is placing on recommending transfers into an available workplace pension and investing in the default fund.

According to Cameron: “Advisers recommending an alternative will have to demonstrate why it is not just as suitable, but more suitable. The guidance provides an opportunity for the FCA to be clearer on what might make alternatives more suitable. This might include where charges are lower or where the default fund is not a good match to the individual’s age and investment objectives.

“Other factors could include where an individual is planning to go into decumulation soon and the scheme doesn’t offer their intended decumulation options or where the scheme doesn’t facilitate Adviser Charging and the individual would benefit significantly from not having to pay by separate fee.”

Aegon has also pushed for greater clarity around how a carve-out from the contingent charging ban will be determined.

Cameron explained that if a client is not known to the adviser, the starting point will be that advice will need to be paid for on a non-contingent basis, but warned that this “may bar those clients who the carve-outs  are designed to help” from proceeding to full advice.

He added: “We support the introduction of abridged advice as a lower cost means of identifying more quickly those for whom transferring is not suitable.  Abridged advice could become the only affordable means of identifying eligibility for carve out. We’d welcome FCA confirmation that advisers can use prior knowledge of a client’s individual circumstances to decide whether or not to offer abridged advice, including to test for carve-out eligibility, rather than going straight to full advice.”

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