Pensions and retirement income - FCA COVID-19 guidance

The FCA has issued guidance for pension providers and DB transfer advisers as the Covid 19 pandemic develops

August 2020

Alistair MacDougall

Technical Manager, ATEB Consulting

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Risk Disclaimer

The information, opinions, estimates or forecasts contained in this document were obtained from sources reasonably believed to be reliable and are subject to change at any time.

It has been produced for information only. Views and opinions should not be considered to be a recommendation or solicitation to buy or sell any companies that may be mentioned. No action must be taken or refrained from being taken based on this content alone.

Key takeaways:

  • Understand recent FCA guidance for pension providers and Defined Benefit pension transfer advisers
  • The FCA’s expectations of advisers with regards to DB pension transfer advice during the Covid 19 pandemic
  • Understand the Pensions Regulator’s guidance to pension trustees and the discretion afforded to trustees to suspend pension transfer activity for 3 months

The FCA has issued guidance for pension providers and DB transfer advisers as the Covid 19 pandemic develops with the aim of ensuring the market can deliver fair outcomes for consumers.

Recognising the operational challenges of implementing new rules in the current circumstances, the FCA has delayed by 6 months the implementation dates of the rules (those not already in force) in Policy Statement 19/21 to 1 February 2021. The other regulatory requirements have not been relaxed – the message from the FCA is that firms must continue to treat their customers fairly and act professionally and in the client’s best interests.

The FCA state that it is as critical now as ever that consumers have access to appropriate pension products and are supported to make well-informed retirement income decisions. Ensuring firms provide well-governed pension products that are invested appropriately and deliver value for money remain areas of supervisory focus.

The guidance concentrates on 2 areas:

 

  • How pension providers can have meaningful conversations with clients without straying into providing advice. This may be of interest for firms with suitable non-advising staff who may be assisting with client communications at this time;
  • The FCA’s expectation of advisers giving DB pension transfer advice, stating that they expect firms to continue to provide suitable advice and follow the existing rules and guidance, in particular those set out in COBS9, COBS 9.1 and COBS 19.2.2R.

DB pension transfer advice

The additional information provided at this time for advisers giving DB pension advice is summarised below:

 

  • Demonstrating transfers are suitable

The requirement to start from a position that a transfer is only suitable if a firm can clearly demonstrate that, on contemporary evidence, the transfer is in the client’s best interests continues.  While it may be more difficult to obtain all the information about a client’s personal or financial circumstances, or about their pension schemes or investments, firms must not make a personal recommendation if they do not have all the necessary information (COBS 9.2.6R);

 

  • Addressing customer misconceptions

Clients may have misconceptions as a result of the crisis, for example they may believe that transfer values ‘are at an all-time high.’ Even were this to be true, which is unclear at this time with some schemes delaying transfer value quotations as a result of market uncertainties, firms should not assume that increases in CETVs automatically improve client outcomes if a transfer proceeds.  They should consider the client’s circumstances and attitude to transfer risk if DB schemes offer larger CETVs, in the normal way.

 

  • ‘Death Benefits will be better in a DC scheme.’

Firms must adequately consider how death benefits are provided by the DB scheme and the proposed DC arrangement throughout retirement. They should also consider alternative options, such as term life insurance and any tax implications.

 

  • ‘My employer is going under, so my pension scheme will too.’

Firms are not experts in employer covenant assessments. Where clients have concerns about the sponsoring employer continuing in business, firms must provide a fair assessment of the benefits of the Pension Protection Fund.

Transferring against advice

Firms may also see more clients who want to transfer against advice they received before the crisis. In these cases, firms should consider whether the client’s circumstances have changed and if it is appropriate to re-visit the advice.  Firms should also repeat the key warnings in their advice and ensure that clients understand the advice they were given.

Where firms agree to transact with clients on an insistent basis, they should follow the guidance set out in COBS 9.5A.

 

TPR Guidance

The Pensions Regulator (TPR) has issued guidance for trustees. It gives trustees the discretion to suspend transfer activity for 3 months. As part of maintaining competence, firms are expected to ensure that relevant staff keep up to date with any guidance TPR may issue that has an impact on the advice process.

 

Complaints

The Financial Ombudsman Service has confirmed that, in deciding what is fair and reasonable in all the circumstances of a complaint, this FCA guidance would be one of the factors that it will take into account if a customer brings a complaint about the firm’s communications on surrendering investments at this time.

 

Consumer information 

The FCA has published a joint statement with TPR and The Money and Pensions Service urging savers to stay calm and not rush into making decisions about their pension in response to coronavirus.

 

Risk Disclaimer

The information, opinions, estimates or forecasts contained in this document were obtained from sources reasonably believed to be reliable and are subject to change at any time.

It has been produced for information only. Views and opinions should not be considered to be a recommendation or solicitation to buy or sell any companies that may be mentioned. No action must be taken or refrained from being taken based on this content alone.

Our view

This guidance confirms that there is no change to the longstanding rule requirements relating to the provision of DB transfer advice but highlights additional considerations which might be relevant currently when providing DB transfer advice.

Action required by you

  • ATEB has significant experience in helping firms provide DB pension transfer advice compliantly. For further details, see our CV.
  • Contact your usual ATEB Consultant for further assistance or contact ATEB here.

 

ATEB Consulting is a trading name of ATEB Business Solutions Limited Registered in England & Wales Reg. No: 5075208. Registered office: Evolve Business Centre, Cygnet Way, Houghton-le-Spring, County Durham, DH4 5QY

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