Comment: Final salary pension sign-offs: Does ‘advice’ enter into it?

UK lawmakers and pension industry regulators are at last beginning to take a look at the process by which individuals with final salary pension schemes are able to transfer these pensions into other savings vehicles. The matter began to capture attention last year, when it emerged that thousands of  members of the failing British Steel Pension Scheme, many of whom worked or had worked in Port Talbot, Wales (pictured above) were being targeted by companies and individuals more interested in transferring their pensions than in doing the right thing for these scheme members. 

Below, Christopher Lean, a well-known Czech Republic-based pension adviser with Aisa International, considers how much advice is involved in pension transfer “sign-offs”– and how much, and what kind, should be.

Are final salary pension sign offs actually advice about pensions or just sign offs? There is a difference.

The Chartered Insurance Institute ( CII ) recently issued all its members guidance as to how it expects final salary pension advice to be conducted, referring to FCA COBS 19 .

We have been approached recently by non-UK firms looking for organisations like ours to provide their final salary pension sign offs. The assumption clearly being made by these non-UK firms is that the sign-off process is just a box-ticking exercise, necessary to enable pension members to transfer their pension assets out of their final salary scheme – whether this actually happens to be in their best interests or not.

For us, at least – and hopefully, for all other UK-based advisory firms asked the same question – the discussion with these companies does not progress beyond the first call.

Since April 2015, under the so-called Pension Schemes Act s.48, all UK pension scheme members are required to have received “appropriate advice” regarding their pension transfers.

Trustees or scheme managers are now required to check that regulated financial advice has been taken before allowing a transfer to proceed – where the proposed transfer involves a DB pension, or other safeguarded benefits, that are worth more than £30,000.

I will come back to the comment “Regulated financial advice has been taken” later.

Final salary pension sign-off: The buck stops here

It may come as a surprise to some non-UK firms that the ultimate responsibility for the advice for the transfer remains with the UK regulated independent financial adviser that provided the final salary pension sign off. But it does.

This means that if the non-UK adviser does not manage the pension scheme member’s pension well, once it has been transfered, then the responsibility remains with the firm that facilitated the sign off in the first place.

The CII makes this clear. It says: “It is not acceptable for a firm without the permission to outsource the transfer analysis to a pension transfer specialist, or to a firm with the permission, and claim to be advising on the pension transfer.”

The adviser must, in other words, be the pension transfer specialist.

“Unless the advice has taken into account the likely expected returns of the assets, as well as the associated risks and all costs and charges that will be borne by the client, it is unlikely that the advice will meet FCA expectations (at COBS 19.1.2 and 19.1.6-19.1.8) .

“What this means is that a firm advising on a pension transfer should not undertake a comparison using generic assumptions for hypothetical receiving schemes.

“The firm must take into account the likely expected returns of the assets in which the client’s funds will be invested as well as the specific receiving scheme.”

What this means

What, therefore, should be happening with respect to UK pension transfers now?

The CII have spelt it out.

“A recommendation to transfer should only be made if this can be clearly shown to be demonstrably suitable and in the client’s best interests,”, it says.

Specifically, the FCA says, in COBS 19.1.6G08/06/2015:

“When advising a retail client… whether to transfer… a firm should start by assuming that a transfer, conversion or opt-out will not be suitable. A firm should only then consider a transfer, conversion or opt-out if it can clearly demonstrate, on contemporary evidence, that the transfer, conversion or opt-out if it is in the client’s best interests.”

“When a firm advises a retail client on a pension transfer, it should consider the client’s attitude to risk including, where relevant, in relation to the rate of investment growth that would have to be achieved to replicate the benefits being given up.

“When giving a personal recommendation about a pension transfer, a firm should clearly inform the retail client about… the consequent transfer of risk from the defined benefits pension scheme … to the retail client.

“Including the extent to which benefits may fall short of replicating those in the defined benefits pension scheme…

“In considering whether to make a personal recommendation, a firm should not regard a rate of return which may replicate the benefits being given up from the defined benefits pension scheme or other scheme with safeguarded benefits as sufficient in itself.”

Advising on final salary pension sign-offs

With respect to the phrase “regulated financial advice has been taken”, based on what we’ve just seen, this clearly is not the same thing as a final salary pension sign-off.

This advice requirement for final salary pension transfers means that the pension transfer specialist should communicate clearly the key costs, risk, consequences and benefits of a transfer.

Specifically, it should include bespoke member suitability.

Any report that does not provide advice, or a recommendation, is not worth the paper it is written on.

Generic summaries of the pros and cons of a transfer would not be sufficient, and it is not acceptable to then leave the client with the decision as to whether a transfer is going to be suitable or not, and getting the client to sign a disclaimer to confirm this.

How any firm that offers a sign-off service for clients of other firms that lack the necessary pension transfer permissions can claim to provide bespoke member suitability, if they have not spoken to and had extensive contact with the client, is beyond me.

And yet, it seems some firms are happy to provide this sign-off service, by claiming that they are not making a recommendation, they do not take into account the actual investment costs or properly understand the pension member’s acceptance of risk and capacity for loss.

I can only surmise that firms that offer this sign-off service are interested in the extra fees that they can make, without being overly concerned about the consequences for the pension holder.


Remember, there is a requirement to take advice and so advice must be given. If the advice is not to transfer, then that should be clearly stated and the pension transfer specialist should take no part in any transfer.

If no specific advice is given, the client should refuse to pay for the report.

Individuals who are considering transferring their pensions, particularly if theirs is a defined benefit plan, or of substantial value, should be told that they must always speak to the adviser/company providing the report, and ask them what they are actually advising, and ensure that this adviser/company is fully aware of their individual circumstances, requirements and plans. Anything less would just not be sufficient.

The CII states, in a recent document, that it remains the institute’s view “that those advisers that facilitate a transfer against their own advice, will be party to arranging an unsuitable solution and as such, might be deemed liable in the event of a future complaint in the absence of any guarantees or input from the regulator on how the Financial Ombudsman Service will interpret such claims.”

Note: he views expressed in this article are not to be construed as personal advice. Individuals who are considering transferring their pensions should contact a qualified, and ideally regulated, adviser in order to obtain up-to-date personal advice with regard to their own personal circumstances. If they do not then they are acting under their own authority and their transfer will be deemed to be “execution only”.

The author of this does not except any liability for people acting without personalised advice, who base a decision on views expressed in this generic article. Readers must be aware that this article is dated the 21 of March 2018, and is based on legislation applicable as of that date, which over time is likely to have changed. 

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