The FCA has released its latest thematic review, TR14/12, on enhanced transfer value pension transfers. If you are involved in occupational pension transfers, then you need to read it.
While the report is based on a review of ETV cases, the FCA has made it clear that it is important to ‘read across’ into other occupational pensions transfer advice that includes unenhanced levels.
Specific FCA rules for transfer business are referenced in COBS 19, but TR14/12 provides a clear driver for firms to review their practices to ensure compliance. Specifically, TR14/12 highlights a number of areas for attention. Some are:
■ Pension transfer advice must be robust and comply with all of the available rules and requirements.
■ Take care to prevent clients reaching irrational conclusions about a scheme. Concerns over the security of schemes, or the employer’s solvency, have not always been presented in a balanced way, leading to transfers detrimental to the client.
■ Refer to the code of practice for incentive exercises from June 2012 and practitioner notes. The review includes schemes carried out pre-code when cash incentives were permitted — so some issues, such as offers being made at the end of the year and now banned by the code, are less significant going forward.
■ Advice needs to be tailored to an individual’s circumstances. Avoid over-reliance on generic template solutions.
■ Clients need to recognise the transfer of risk that occurs when moving from a defined benefit to a defined contribution scheme.
As ever, clear record-keeping is essential, together with robust processes, when dealing with insistent clients who act against the given advice not to transfer. This ensures that such clients understand the reasons for the advice.
The FCA also use the review to highlight what it sees as some of the drivers of unfair customer outcomes, including:
■ Advice where the outcome focuses on critical yield analysis, without full consideration of wider member circumstances.
■ The use of default receiving schemes and inadequate assessment of the suitability of a member’s other existing pension arrangements.
■ Limited consideration of the tax and, in a small number of cases, ‘means-tested benefit’ implications, of accepting an offer.
Organisations are advised to carry out a gap analysis of their current practices. PI insurers may have an interest at renewal as to what companies did in response if they remained in this market.
Simon Thomas is head of policy of Tenet Group
