On the go: Trustees have been warned that providing personalised illustrations to demonstrate the outcomes of a defined benefit pension transfer will be viewed as regulated advice under new guidance from the Financial Conduct Authority.
Hymans Robertson has made trustees aware of a ”hidden” section in the regulator’s recent guidance paper on advising on DB transfers which implicates that trustees providing this level of analysis might steer a member towards a specific decision, which is part of the regulated advice process.
In the FCA’s guidance consultation, Advising on pension transfers, published in June alongside its final rules for DB transfer advice, the regulator explained how employers and trustees can give information that presents a “balanced and factual view” of the general advantages and disadvantages of staying in a DB scheme or transferring out to access flexible benefits.
But it warned trustees to not give information based on personal circumstances. The FCA said providing illustrative figures that compare the outcome of a transfer could steer savers to a particular course of action.
It stated: “If an employer or trustee provides a transfer value comparator, in accordance with the FCA’s rules, they should consider whether they are doing it by way of business and need FCA authorisation.”
Pensions Expert understands that the FCA will make it clear as to what illustrative figures are able to be included without straying into advice, such as an illustration of the transfer value itself, combinations of tax free cash and scheme income and combinations of partial transfer values and remaining scheme benefits.
But illustrations that show how a transfer into a defined contribution scheme can be used to enter drawdown or purchase an annuity is likely to be classed as advice.
Ryan Markham, partner and head of member options at Hymans Robertson, said this could have “significant implications” for trustees as to what information they can confidently provide to their members to help educate them without straying into advice.
Mr Markham said: “It will be especially relevant where schemes provide this information as standard at retirement or have digital tools which allow members to explore transfer and conversion options on demand.”
He also warned it will be bad for members as many could go ahead with a DB transfer without being aware of all the implications on their pension.
He added: “[Members] will have no idea of what a transfer could mean for them and therefore no reason to explore their options.
“On the other hand however, if all members can be provided with is a transfer value they will simply see a big number without the context and potentially want to access the cash. It will also put them at increased risk of falling victim to scammers or being preyed upon by unscrupulous advisers.
“Either way, not being able to provide this information feels like a real step backwards and counter to giving members enough information to make well-informed life-changing choices.”
Hymans Robertson has called for greater clarity on these proposals and greater debate on the guidance versus advice boundary across the industry.
Pensions Expert understands the FCA will consider all the issues raised by the industry when preparing its final guidance – in particular, what further clarity it can provide to schemes and employers.
This article originally appeared on ftadviser.com
