Financial regulators are launching new pension transfer rules in a bid to stop rogue advisers ripping off retirement savers.
The Financial Conduct Authority (FCA) is raising the bar on qualifications advisers must hold to recommend a transfer out of a defined benefit scheme and calling for more detailed explanations of recommendations to clients.
Typically DB schemes are workplace pensions that include guarantees, such as inflation-linked payments, enhanced annuity rates and benefits for spouses or partners.
From October 2020, anyone giving pension advice must hold a higher qualification showing that they can discuss investments with clients.
The FCA also wants advisers to draft a recommendation that shows clients understand the financial risks of giving up DB pension benefits, even when transferring to gain the advantage of pension freedoms.
Tata Steel debacle
Many DB pension savers transfer to a personal pension so they can access their cash from the age of 55 because most DB schemes lock their retirement funds until workers are 60 or 65 years old.
The changes follow a consultation earlier in the year provoked by the Tata Steel debacle when some allegedly unqualified advisers were involved in pension transfers to gain high fees without regard to their clients’ financial circumstances.
The FCA held off on changing contingent charging rules – like the ‘no win, no fee’ charging system lawyers use.
“Responses to the FCA’s consultation confirm its initial analysis that the evidence it has seen does not show that contingent charging is the main driver of poor outcomes for customers,” said the FCA.
Poor advice
The report says the FCA will continue to investigate the causes of poor advice which has led to several advisers leaving the market.
Christopher Woolard, the FCA’s executive director of strategy and competition said: “These new rules will mean advisers have greater certainty and confidence in what we expect when they offer pension transfer advice.
“We expect our interventions to improve the quality of advice which will help to reduce the number of complaints against advisory firms. We will measure consumer outcomes through our supervisory work.
“Any changes to our rules on contingent charging could have implications for the supply of advice. Because of the significance of this issue to all stakeholders in the market, we will carry out further analysis and consult on new interventions if appropriate in the first half of next year.”
