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FCA PS20/06 pension transfer advice: overview and action points

24 June 2020

ATEB Consulting’s Steve Bailey provides an overview of PS20/06 and two of the rule/guidance changes, which took effect this month.

This month the FCA published the long awaited policy statement ‘Pension transfer advice: feedback on CP19/25 and our final rules and guidance‘. The policy statement was accompanied by a substantial Guidance Consultation covering the FCA’s proposals for guidance on how firms should implement the new rules. Consultation feedback is required by 4 September 2020.

While primarily trailed as being about the decision to ban contingent charging for defined benefit transfer advice, the paper covers a great many other aspects, many of which represent significant rule changes, including:

  • Ban on contingent charging;
  • Exceptions to the ban;
  • Abridged advice;
  • Requirement for firms to consider using the client’s existing workplace pension as a destination for the transfer.

Other ancillary topics covered include new rules and guidance around:

  • Triage services;
  • Two adviser model;
  • Personalised charging document;
  • Mandatory one page summary for suitability reports;
  • Client understanding;
  • Data reporting;
  • Introducers;
  • CPD;
  • Cash flow modelling;
  • Estimated transfer values.

Most of the new requirements take effect on 1 October 2020 with some transitional arrangements applying to pipeline cases. I will be writing about the different aspects in more detail over the coming couple of weeks.

However, two of the rule/guidance changes took effect this month, so we outline those below.

Triage services

The FCA reminds firms that triage must be a purely educational exercise in order to ensure that they do not stray inadvertently across the regulated advice boundary.

In addition, firms can use decision trees and RAG-rated questionnaires as educational tools in other forms of guidance, unrelated to pension transfer advice, such as where the consumer has a range of available options, but because firms can only make a binary recommendation on whether or not to transfer when giving advice on pension transfers and conversions, these tools carry a high risk of crossing the advice boundary for pension transfer advice. For this reason, perimeter guidance is that firms should not use decision trees or RAG-rated questionnaires when giving triage services on pension transfers or conversions.

Estimated transfer values

Firms can give provisional advice where only estimated transfer values are available, in cases when ceding scheme arrangements are expected to be changed or replaced by another scheme.

In these circumstances, the ceding scheme usually requires the scheme member to provide an indicative decision about opting into the changed or replacement arrangements. The scheme then uses this information to determine final transfer values. Members need to be able to make an informed decision based on the estimated transfer value.

If a hybrid scheme is changing or replacing its safeguarded arrangements, the final guidance applies in the same way as for other affected schemes, assuming the benefits need to be treated as safeguarded for transfer purposes.

Where a scheme is undergoing a s.143 assessment to enter the PPF, only previously confirmed transfers out are allowed. Where a scheme is leaving the PPF so the scheme arrangements are being changed or replaced, and a member has an estimated transfer value, the final guidance applies.

Advisers are expected to finalise their advice once details of the final transfer value and the changed or replacement ceding arrangement are both available. Firms should not give advice based on estimated transfer values except where the ceding scheme arrangements are expected to be changed or replaced.

Our view and suggested actions

The policy statement is a substantial paper and introduces significant changes to the rules and guidance around transfer advice. Every firm that provides transfer advice, or introduces clients to a third party transfer adviser, will need to be aware of the new requirements and make changes to their advice processes and documentation.

Firms have until 1 October to prepare for the new environment with the exception of the changed guidance on triage and estimated transfer values which both came into effect on 15 June 2020.

Firms will need to familiarise themselves with the new rules and guidance and review processes and documentation, amending them as required.

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