Transfer incentives: FSA issues new rules for advisers

This article was produced by Nabarro LLP, which joined CMS on 1 May 2017.

The FSA has issued revised rules and assumptions for those advising on pension transfers (specifically transfers from defined benefit schemes to personal pensions, such as on an enhanced transfer value exercise). The new rules are effective from 1 May 2012.

The rules have been published in a very short time-frame to prevent a rush of transfers before they are brought in. Changes to the assumptions include taking account of gender neutral mortality rates (following the Test-Achats case) and the move to CPI for revaluation and pension increases. Some of the assumptions have been tightened which will result in fewer “green light” recommendations to transfer being made.

The starting point for pension transfer advice is that a transfer will not be in the member’s best interests

In line with statements previously made by the Pensions Regulator, the FSA states that: “Given the high level of risk attached to giving up the fixed benefits associated with a DB scheme, the starting point for pension transfer advice is that a transfer will not be in the member’s best interests.”

When recommending a transfer in future an FSA-regulated adviser must: “Clearly inform the retail client about the loss of the fixed benefits and the consequent transfer of risk from the defined benefits pension scheme,” and must cover the points in the box below.

We are also awaiting an industry code of practice on incentivised transfer exercises. This is being put together following various statements of concern made by Pensions Minister, Steve Webb, particularly relating to transfer exercises where cash incentives are offered.