Register free for our breaking news email alerts with analysis and cutting edge commentary from our award winning team. Registration only takes a minute.

How 4 providers responded to FCA’s DB transfer consultation

Freedom of information requests by New Model Adviser found the responses of Aegon, Scottish Widows, Standard Life and Prudential to the FCA’s DB transfer advice concultation.

The FCA's DB transfer paper 

Today the Financial Conduct Authority (FCA) released its long-awaited policy paper on rules around defined benefit (DB) transfer advice along with a consultation on further changes to rules.

The policy paper brought forward a number of changes, including that all advice on DB transfers should include a personal recommendation and replacing the current TVAS model with the new appropriate pension transfer analysis (APTA). The regulator also u-turned on its plans to soften the starting point that transfers are 'unsuitable' for clients and will consult on a potential ban to contingent charging.

The policy statement followed from a consultation which was released last summer. A lot has changed since that June consultation (perhaps most notably the British Steel saga).

Pension providers play a big role in shaping regulatory policy and are of course one of the biggest benefactors of the DB transfer surge.

We take a look at some of the providers’ responses, obtained through freedom of information requests, to that consultation. 

The FCA's DB transfer paper 

Today the Financial Conduct Authority (FCA) released its long-awaited policy paper on rules around defined benefit (DB) transfer advice along with a consultation on further changes to rules.

The policy paper brought forward a number of changes, including that all advice on DB transfers should include a personal recommendation and replacing the current TVAS model with the new appropriate pension transfer analysis (APTA). The regulator also u-turned on its plans to soften the starting point that transfers are 'unsuitable' for clients and will consult on a potential ban to contingent charging.

The policy statement followed from a consultation which was released last summer. A lot has changed since that June consultation (perhaps most notably the British Steel saga).

Pension providers play a big role in shaping regulatory policy and are of course one of the biggest benefactors of the DB transfer surge.

We take a look at some of the providers’ responses, obtained through freedom of information requests, to that consultation. 

Aegon

In its response to last year’s consultation on DB transfer advice, Aegon noted that there is not currently enough supply to meet the DB transfer demand and encouraged the FCA to provide clarity to advisers of what best practice in this area looks like.

As well as encouraging the FCA to provide clarity for advisers, Aegon also called for the regulator to further soften its starting assumption that DB transfers are unsuitable – a move it suggested it was moving to in last year’s consultation paper.

‘We agree with the proposed new guidance on assessing suitability. We are pleased that the FCA is moving away from a starting assumption that transferring is not suitable,’ Aegon’s response said. ‘However, we believe that the FCA should explicitly recognise that some individuals will have deferred entitlements to safeguarded benefits within several DB schemes. We recommend the FCA changes its starting position to “keeping some safeguarded benefits will be in the best interests of most customers.’

This response contrasts starkly with what the chair of the Work and Pensions Select Committee MP Frank Field called for in light of the British Steel saga as he said: ‘To propose, as the FCA did in July last year, abandoning the adviser presumption against transferring out of a gold-plated, stable, indexed pension scheme: it really makes you wonder whose side they’re on.'

In the end the FCA sided with MPs over providers and has stuck by its previous starting assumptions that transfers are unsuitable.

Scottish Widows

The insurer Scottish Widows said it supported the FCA’s move towards a ‘most holistic consideration’ of a customer’s personal circumstances when giving DB transfer advice – which can be seen with its move away from a focus on the critical yield and with the new APTA system.

Pete Glancy, head of policy development at Scottish Widows who wrote the firm’s response, also called for partial transfers to be made a mandatory offering for eligible members.

Glancy also said that all DB members should be given information about the option of transferring out of their DB schemes.

‘If we accept that some customers in some circumstances could make use of more flexible products to meet their retirement needs (including spouses and dependents) more fully than through their scheme pension, we then need to consider whether it should be mandatory for all members of DB pension schemes to be given more information in relation to this choice prior to locking themselves irrevocably into a scheme pension,’ Glancy said.

Glancy also said the question of whether or not to transfer should be brought into the debate around long-term care funding as this DB pension, alongside a house, is likely to be retirees’ biggest assets.

Scottish Widows also agreed with the FCA's now rejected proposal to soften the starting suitability assumption. 

Standard Life

In its response to the consultation Standard Life’s chief executive Barry O’Dwyer wrote that as transfers are irreversible, ‘a dumbing down of standards would very likely lead to consumer detriment’.

O’Dwyer called for the FCA to issue advisers clarity with the new transfer value comparator (TVC). This will be similar to the previous critical yield model within the TVAS system but will require advisers to match up the transfer values against the pot needed to buy the equivalent annuity along with a discount rate applied to pots at different ages.

O’Dwyer warned the FCA that if the TVC system is left with a personal element there is a danger IFAs would focus too much on this and replicate the appropriate discount rate as equivalent to the critical yield – the FCA previously noted IFAs are relying too heavily on the critical yield.

This comment was acknowledged in the FCA’s summary of feedback responses which said some respondents felt the TVA may ‘become a focus of the advice rather than one part of it’.

The Standard Life chief executive also called for the FCA to include reference to partial transfers in its guidance and also called for the FCA to provide a list of factors to consider when assessing suitability.

Standard Life also agreed with the FCA's proposal to soften the starting suitability assumption for DB transfers. 

Prudential

In Prudential’s consultation response the insurer welcomed the regulator’s move away from the assumption that transfers are unsuitable, saying this is ‘out of date in the post-pension freedoms environment’.

However Prudential noted a contradiction in the regulator’s change in stance saying its line that assessing transfer suitability from a ‘neutral starting position’ and the move to ‘it will be in the best interests of the majority of consumers to obtain, or retain, safeguarded benefits’ are not compatible.

Prudential said this new starting point again places the emphasis on staying in DB schemes and said it should move to ‘it will be in the best interests of many consumers’.

However Prudential said the final stance from the regulator is likely to be in favour of keeping a DB pension and as such ‘we do not believe that the change in wording will significantly alter advisers’ approach to these transfers’.

‘Fundamentally, we agree that any advice has to be in the best interests of the individual client and we believe that is how many advisers have, and will continue to, approach the advice they give,’ the response said.

Prudential supported the move to the APTA and TVC system but warned against advisers being allowed to dictate the discount rate for the TVC as this will leave too much subjectivity.

Comment & analysis

Twitter