Having attended an FCA Live and Local roadshow on defined benefit (DB) pension transfers recently, there was one key message that stood out for me. 

    This was that one of the main reasons the FCA has ‘failed’ occupational pension scheme transfer files in the past has been the lack of ‘know your client’ details.

    The lack of this data and the associated scheme data means it is difficult to show the transfer is in the client’s best interests. Which is pretty simple really.

    This also reflects some of the results of files we see. The common areas that are missed are:

    • The lack of details on other pensions held by the client
    • The lack of pension details on the client’s spouse/ partner
    • The lack of state pension details
    • Insufficient detail about how much retirement income (both discretionary and non-discretionary) the client needs
    • The lack of scheme data with details as to whether partial transfers are allowed, early retirement factors and commutation factors for the pension commencement lump sum
    • Objectives that are too generic
    • The advice is client-led rather than adviser-led. For example, the client has already spoken to a work colleague who has transferred and the client wants to go ahead, but the adviser hasn't challenged the client as to why given their particular circumstances
    • A lack of alternative solutions being considered that would meet the client’s objectives, including to stay where they are
    • The advice or recommendation doesn't reflect a downturn in the cashflow forecast, that is, it hasn't been adequately stress tested.

    I appreciate it can sometimes be difficult to gather all the data needed, especially given the time constraints placed upon firms by clients. 

    But essentially this comes down to managing client expectations, and not being pressured into doing something you don’t feel comfortable with.

    The role of triage

    Another area which is causing some confusion is triage. This is particularly the case in terms of how triage applies to existing clients who may have DB benefits.

    The concept of triage was discussed in the FCA's policy statement on improving the quality of pension transfer advice.

    Triage is about educating prospective and existing clients to help them decide if they still wish to pursue advice on whether their DB scheme meets their needs, and pay the associated charges for this advice. 

    Triage is supposed to be guidance without stepping into the boundaries of advice.

    There are some cracking systems on the market to address this, such as Money Alive, which provides a series of educational videos for individuals to work through, and CashCalc which offers a series of modules to listen to.

    Technically, triage is not a mandatory requirement by the FCA.

    However, the paper does recognise this is useful for clients and prevents them from paying unnecessary charges. I also understand from some professional indemnity brokers that they encourage this practice, provided there is a proper process in place.

    What is required though, and it's a point worth flagging, is firms have to be very clear with the client as to when the advice process is starting for DB transfer advice and therefore when any charges would be incurred.

    This means that for existing clients of a firm, they don’t have to go through a triage process - they can go straight into receiving advice.

    Knowing the client as the adviser does, the trick is not to stray into prejudging whether a transfer should take place or not based on the client’s personal circumstances. If that is the case, the whole advice process needs to be followed.

    Getting information on what the DB pension will provide at scheme retirement age is not advice. Equally, information on scheme funding etc is not advice.

    This means that if a firm just gets the latest information on what the client would receive for cashflow/ annual review purposes then this is acceptable.

    There is a caveat to this though. This is that the adviser must not provide any opinion as to whether this is good value, or whether the client should consider whether there may be some value in transferring away from the scheme. 

    Cash equivalent transfer values shouldn't be obtained if the aim is purely to get information on what income the client will receive at scheme retirement age.

    Firms should also make sure that if cashflow modelling is used, the assumptions are realistic in relation to the scheme. They should also be outlined to the client with a summary as to what this means for them.

    An adviser can assume the client will take benefits from a scheme when they reach scheme retirement age, which can then be factored into any cashflow modelling.

    Again, this would not be considered advice although this all depends on how this is presented to the client.

    The trick is for firms to have a clearly defined pension transfer advice process in place, and one that the whole team buys into and follows.


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