Given that the benefits in a DB pension scheme are seen as better and more valuable to most members than those of a defined contribution scheme, this could make sense. However, considering the fact that advisers should always give clients advice that is most suitable to their individual circumstances, it would seem to be an unnecessary statement.
Most of the other issues raised in the consultation went through essentially as proposed. They included:
- Requiring all advice on pension transfers to be a personal recommendation.
- Clarifying the role of a pension transfer specialist when checking advice written by another adviser.
- Replacing the current transfer value analysis requirement with an obligation to undertake an appropriate pension transfer analysis of the client’s options, and a prescribed transfer value comparator comparing the value of the benefits being given up and the cost of purchasing the same income in a DC pension scheme.
- Applying a consistent approach for pension opt-outs where there are potential safeguarded benefits.
Very little of these issues was new to those already giving good advice to their clients, apart from the change from the transfer value analysis service to the Apta and the new TVC. Both changes were designed to make it easier for the client to understand the advice being given and increase the clarity of the personal recommendation.
The Apta is less prescriptive, allowing advisers to include details that are more relevant to their clients and only include a critical yield if it is deemed helpful. There are some additional requirements included, such as the need to take account of taxes on the benefits and the impact on state benefits in relation to the transfer.
Furthermore, it requires advisers to consider trade-offs in greater detail, as well as the impact of pension protection schemes such as the Financial Services Compensation Scheme and the Pension Protection Fund should either scheme fail.
The new TVC will be a significant change to the process that we are used to, and is designed to show graphically the cost to provide the same benefits at retirement under the new pension scheme. This still doesn’t get around the issue of the client wanting different benefits at retirement, such as drawdown, but it is thought to be easier to understand than critical yields ever were. We will wait to see if this has any significant impact on the amount of transfers that proceed.
The policy statement in March 2018 led directly on to a further consultation document. Another policy statement, ‘PS18/20: Improving the quality of pension transfer advice’, was then published in October based on the responses received. These included:
- Raising qualification levels for pension transfer specialists to require them to obtain the same qualification as an investment adviser in addition to PTS qualifications.
- Guidance to clarify that advisers should not just focus on attitude to investment risk, but also explore general attitudes to the risks associated with a transfer.
- Guidance to illustrate appropriate ‘triage’ services on pension transfers.
- A requirement for firms to provide a suitability report regardless of the outcome of advice.
- Updating the various assumptions on inflationary pension increases.
Again, there was little change in the proposals that were put forward in the consultation, except for further clarification with regards to the triage services that can be offered. The concern with these services was that it is easy to stray into the area of advice.
Triage services must only give generic information about pension transfers and can’t take account of any personal circumstances. Should personal circumstances be taken account of, then advice is deemed to have been given. Hence a suitability report would be required even in the cases where a transfer didn’t take place, however early on in the conversation this decision was made. This is something that is likely to limit the type of conversations that advisers can and will be willing to have with potential clients, partly due to the cost of providing a suitability report.
