Our guide to the FCA’s final rules on DB to DC transfers
The Financial Conduct Authority (FCA) has confirmed its final rules on pension transfers. Since 6 April 2015 any member wishing to transfer out of a defined benefit scheme has been required to take independent financial advice if they have DB assets of £30,000 or more.
This advice on transfers must be checked by a pension transfer specialist, and the adviser must be qualified.
“There was a bit of a regulatory gap at one point about whether or not it was a specified activity [and therefore required the adviser to be specifically qualified]”, says Graham Wrightson, a partner at law firm Stephenson Harwood. “The FCA now says it is a specified activity, so it does require advice for the conversion or transfer of pension benefits”.
These rules have come into effect immediately.
What does it mean for schemes?
“There isn’t a wealth of pension transfer specialists around,” says Wrightson, meaning that it is not obvious where members are going to get the advice. This puts the trustees in a difficult position because they are legally obliged to make sure people have had independent advice on these transfers.
Record-keeping issues could arise, because although the trustees don’t need to see the advice the member has received, they do need to ensure that advice has been obtained. A pensions manager may wish to create a form with a tick box to record that the member has received the advice so the transfer can legitimately go ahead.
If there is a deluge of members looking to transfer out of DB arrangements and into DC schemes, it is possible there could be an advice bottleneck.
Trustees should be careful not to cross the boundary into providing members with financial advice. This could open them up to legal action further down the line. Instead, trustees could consider referring members to an FCA-qualified financial adviser, or to the government’s Pension Wise service.
In turn, IFAs will need to be careful to consult the FCA’s guidelines on what to do with insistent clients who want to make transfers they consider ill-advised. Again, the scheme has a responsibility to communicate with its members about the implications of transferring out of DB schemes.