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Watchdog strengthens rules on pension transfers

Financial Conduct Authority beefs up advice rules amid fears the government's retirement reforms could lead workers into trouble.


by Jun Merrett on Mar 04, 2015 at 17:07

Watchdog strengthens rules on pension transfers

City regulator, the Financial Conduct Authority (FCA), is set to strengthen rules on the advice given to people transferring their pensions.

Amid growing concern at the potential problems the government's pension 'freedom' reforms could cause, the FCA today proposed that the advice offered to people switching from 'defined benefit' (or final salary) company pension schemes to 'defined contribution' workplace pensions should come under its watch.

Currently, advice on DB to DC schemes is currently not regulated by the FCA, although the Pensions Regulator regulates the schemes themselves. However, advice on transfers from DB to personal pensions, such as Sipps, is regulated by the FCA.

In a consultation paper the FCA said advisers advising on DB to DC transfers must have the pension transfer specialist qualification which they are currently required to have for transfers from DB to personal pensions.

The announcement follows our report yesterday of the concerns that a large number of workers may seek to give up valuable final salary scheme pensions in order to gain control of their pension pot at retirement. As we reported, public sector workers have just a month to transfer out but members of private sector company schemes have no such deadline, raising the importance that they receive good advice.

The FCA said the government’s incoming pension reforms had made advising on pension transfers ‘significantly more complex’.

Christopher Woolard, FCA director of strategy and competition, said the new pension flexibilities increased choice for consumers, but that DB scheme transfers posed ‘particular issues’.

‘We need to ensure that those who are considering moving away to other arrangements are fully aware of the potential benefits they are giving up,’ he said. ‘In many cases transferring from DB to DC may not be in the member’s best interests and ensuring independent advice is taken is an important protection.’

According to pension and investment broker Hargreaves Lansdown, there are 6.9 million people with DB pensions due to retire after April 2015.

Pension consultancy Hymans Robertson estimated that between 2.5 million and 2.8 million non-pensioners currently with private sector DB schemes may retire in the next 10 years. Of those, 300,000 to 400,000 may retire in any given year with DB entitlement, of which it estimates 30% may transfer their pensions.

Hargreaves research said the majority of DB members would not transfer, but a 'significant minority' of around half a million members have the intention to transfer. The firm conducted a survey based on 1,037 people which also showed almost one third of all DB scheme members have yet to rule out transferring.

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