The UK’s financial watchdog has proposed more stringent rules on financial professionals providing advice to people wanting give up “gold-plated” final salary pensions.
Former chancellor George Osborne’s pension freedoms allowed Britons to cash-in part of their retirement pots from 2015. Such freedoms could be applied to both defined benefit schemes, where annual pensions are broadly fixed; and defined contribution pots, where pay outs are based on investment returns.
Transfer values, what a defined benefit is worth in defined contribution terms, have soared to historically high levels. This has provided the catalyst for many people on final salary schemes to consider a switch.
But the Financial Conduct Authority (FCA) said today it wants to intervene after seeing cases of poor advice on transfer values from professionals. It wants to shift the onus onto the adviser to prove a transfer is in the best interests of the customer.
“These proposals go a long way towards ensure savers understand the losses they could suffer by leaving defined benefit schemes,” said Pensions and Lifetime Savings Association policy lead James Walsh.
Old Mutual financial planning expert Rachael Griffin added: “Today’s consultation paper from the FCA takes an important step in modernising defined benefit transfer advice.
The paper appears to recognise that, with pension freedoms now over two years old, the environment is different and the advice process must look at issues on a case by case basis.
Meanwhile Steven Cameron, a pensions director at Aegon, warned: “Consumer demand for transferring out of defined benefit schemes has never been higher and in this complex area, customers absolutely need advice.
“But advisers are currently faced with second-guessing what the FCA considers as suitable advice, including how to allow for the pension freedoms those in defined contribution schemes now enjoy.”