News FCA acknowledges pension freedoms and final salary transfers

FCA acknowledges pension freedoms and final salary transfers

Financial Conduct Authority

FCA acknowledges pension freedoms and final salary transfers

The Financial Conduct Authority (FCA) plans to overhaul the current transfer value analysis (TVAS) system for defined benefit (DB) transfers and replace it with a new system.

According to the FCA’s current rules under COBS 19.1, advice firms must provide a TVAS report. This includes a critical yield analysis which compares the DB benefits with an annuity.

However the FCA has today said that this comparison method is outdated as alternatives to annuities have become more popular since pension freedoms. The FCA also said advisers are becoming over-reliant on the critical yield when giving DB transfer advice.

‘Taking everything together, we believe that the changes in the pensions environment mean that the current TVAS is no longer leading to the best outcomes for consumers, and advisers are often focusing too much on this analysis when advising in this area.

‘We therefore propose to replace TVAS with an overarching requirement to undertake appropriate analysis of the client’s options. We will refer to this as the ‘appropriate pension transfer analysis’ or APTA,’ the FCA paper said.

As part of this the FCA has proposed a ‘prescribed comparator providing a financial indication of the value of benefits being given up’.

The FCA said the APTA must consider the receiving scheme and the underlying investments ‘as well as s the way benefits will be accessed e.g. flexi access drawdown, uncrystallised funds pension lump sum, standard or impaired annuity etc’.

The FCA said it still wants to continue with the annuity comparison through a transfer value calculator (TVC) within the APTA as it thinks it is important for consumers to understand why their Cash Equivalent Transfer Value (CETV) is different from what it being offered under the annuity comparison.

‘Therefore, the notional annuity purchase is being used as a proxy to determine the value that might be gained or lost by giving up the safeguarded benefits,’ the FCA said.

The FCA also proposed including product charges from platforms and IFAs within its TVC calculation.

Giliker Flynn Independent Wealth
2 Gower Street
Newcastle under Lyme
01782 840590