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Key points from FCA’s finalised DB transfer guidance

21 April 2021

Mark Devlin, technical manager, Prudential, considers key points from the FCA’s finalised defined benefit transfer guidanceFG (21/3)

Remember the Fun Boy Three/Bananarama song ‘It ain’t what you do it’s the way that you do it’?

Last June we had the finalised rules on pension transfer advice (what you do). Now we have the response to the guidance consultation (how to do it) with the publication of Finalised Guidance paper FG21/3.

It’s non-handbook guidance designed to understand the FCA expectations on how to follow the rules. It focuses particularly on the processes firms need to put in place to give suitable DB transfer advice – and avoid giving unsuitable advice. So should you just consider them rules?

Most of what was consulted on made it through to the finalised guidance, there are some interesting bits of info and clarifications in this paper that makes fully reading it essential for DB advisers.

If you’re not involved in DB advice you may not need a forensic examination, benchmarking of your processes against the guidance. But there could easily be a read through for any pension advice

But as a warmup for that, here’s the key issues (and a few key reminders) that I identified within the paper.

Permission regime

Can I give the advice? A key issue!

In terms of what permission is needed, it’s limited or full.

  • limited permission: advising on transfers from GARs, including retirement annuities, only
  • full permission: all pension transfers, pension conversions and pension opt-outs

A transfer from an occupational scheme without safeguarded benefits ceased to be a transfer on 1 October 2020, so no transfer permissions are needed.

Opt-out permissions are not needed where there would be no redirection of contributions to a FCA-regulated replacement scheme, for example, because of LTA issues. But does this mean that you have to ignore any extra disposable income forever after that?

Permissions are not needed when advising a client on whether to join a DB scheme. The treatment of pensions and divorce is clarified. Permissions are not required as the pension credit is not regarded as safeguarded benefits (or money purchase or cash balance benefits) or a transfer payment but as a right in itself.

A technicality perhaps? If the ex-spouse has the option of securing defined benefits, then surely the guidance in the paper would need followed to deliver in their best interests?

If you advise an ex-spouse on using the pension credit to acquire rights in a DB scheme, this falls outside FCA-regulation. Clearly if selecting a DC scheme you must have investment advice permission.

However, whilst the permission may not be needed it would still be one to check over with your compliance department for their stance on this, as simply opting out to avoid charges may not be the best outcome for the client, especially if safeguarded benefits and/or employer matching are in the mix. These calculations can be quite complex as demonstrated in our Lifetime allowance and annual allowance planning for the high net worth client article.

Advising on GAR transfers only requires the firm to have limited permission. The interesting takeaway from the paper is the clarification that the starting assumption for transferring safeguarded benefits i.e. unlikely to be suitable for the majority applies equally on transferring GARs.

Only limited permissions are needed, but there’s still a very high suitability bar to pass.

The paper pulled out in bold that DB advice has two parts to it, sometimes given by two different advisers. These are;

  1. whether to give up safeguarded benefits


  1. where to transfer the funds to, should a transfer proceed

They should not be treated separately. Transaction 2 cannot happen unless there is a PTS giving (or signing off) transaction 1 who must know where the funds are being invested when formulating their recommendation.

Lastly in this section a good call out was the example of the firm that clarified for clients they had an ongoing relationship with and had DB benefits, that the ongoing advice assumed the DB scheme stayed in place until NRA. They would only consider advice on the DB if the client approached them for this.

PI Insurance

A hot topic in the industry and the finalised guidance contains a reminder to PII distributors of the regulators expectations of them. Particularly in the TCF, Prod and COBS areas. There was also mention of the financial resources advisers had to hold over and above their PI policies. It’s not overly concerned with the advice process, so I’ll leave it at that but it is an essential read for all active firms.

MI and Introducers

Do you only collect information required in your Retail Mediation Activities Return? If so, you are probably not collecting enough information to have adequate systems and controls.

Think of conversion rates of transfers (down to a PTS level), how many clients then go onto insistent, how much of this business is form introducers, and is there a high proportion of insistent clients from introducers that may indicate an issue?

And clearly if your MI throws up an issue – make sure it gets dealt with.

Charging Disclosures (continued on next page)

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