A number of major UK pension specialists have suspended, at least temporarily, their pension transfer services over the last few days, in the wake of a policy statement by the Financial Conduct Authority last Monday, which appeared to signal a shift in the regulator’s plans for overseeing defined benefit transfers.
The latest company to suspend its pension transfer services was Scottish Widows. It is understood to be at least the fifth company to take this decision in the days since the FCA’s statement, on 26 March, in which the regulator said that it was “maintaining our guidance that an adviser should start from the assumption that a transfer will be unsuitable”, particularly with respect to pension transfers “where consumers are considering giving up safeguarded benefits, primarily for transfers from defined benefit to defined contribution pension schemes”.
This comes more than nine months after the FCA said it planned to overhaul its rules governing transfer value analysis (TVAS) system transfers for defined benefit pension transfers, in favour of a new system that would better take into account recent changes in the marketplace. It had been expected that this overhaul would have seen the FCA take a less hostile stance with respect to proposed transfers of defined benefit schemes.
A number of firms also suspended such transfers last year, as scrutiny of the pension transfer market began to increase, as organisations such as the Personal Finance Society, began to signal their concerns.
Transfer value analysis systems are a way that entities, such as pension transfer specialists and pension scheme providers, are able to compare pension benefits due to a pension scheme beneficiary under a defined benefits scheme to the benefits they would potentially receive from a scheme they were considering transferring their pension into. Such transfer analyses have typically been provided without charge to those looking to transfer their pensions, but some critics have argued that this could potentially be seen as an inducement to those carrying out the analysis to find in favour of a transfer, if they stood to benefit from it.
In a statement today, Scottish Widows said: “We have withdrawn our free TVAS service until further notice. To avoid disruption for advisers and their clients, we will fulfil the small number of existing requests that are already in progress.”
In announcing its suspension, Scottish Widows has joined Old Mutual Wealth, Standard Life Aberdeen, LV= and Prudential.
At Old Mutual Wealth, Scott Goodsir, managing director of UK distribution, acknowledged that there continued to be “high demand” for the company’s pension transfer service. So even though OMW was “pausing our TVAS service as we review the detail” of the FCA’s most recent policy paper, he added that the company was also “looking at how we can continue to support customers and advisers going forwards”.
Like Scottish Widows, OMW intends to go ahead with all requests that have already been submitted, while “any requests for re-quotes must be submitted by [this]Friday,” Goodsir said.
Novia, the UK platform provider, told International Investment that it will be “continuing to provide the TVAS tool to our adviser clients”, but that it will be introducing “a small charge to cover the administration costs to provide the service”, of £75 plus VAT, which will apply to all applications it receives from this Friday onward.
The company said it would not levy a charge for the completion of any existing cases, or any cases that required a re-quote.
‘High proportion of unsuitable advice’
Explaining the thinking behind its unexpected decision to maintain its opinion that assumed pension transfers would normally be “unsuitable” until proven otherwise, the FCA referred to “the high proportion of unsuitable advice seen in supervisory work, and need for further consideration of how transfer advice should be paid for”.
It noted that the existing guidance didn’t prevent an adviser from recommending a transfer in situations “where this can be demonstrated to be suitable for the consumer”.
Included in its statement last week, the FCA said its new rules and guidance included a requirement that all advice on pension transfers “be a personal recommendation”, and that the role of the pension transfer specialist involved in the transfer be clarified when checking the advice to transfer.
It also calls for a replacing of the current transfer value analysis (TVAS) requirement with “a requirement to undertake an ‘appropriate pension transfer analysis’ (APTA) of the client’s options”, as well as a “prescribed Transfer Value Comparator (TVC), indicating the value of the benefits being given up” as a function of transferring out of the defined benefit scheme, and the “cost of purchasing the same income in a DC environment”.
Some of these are to come into force immediately, while others, relating to the new analysis requirement, take effect on 1 October, the FCA said. The new assumptions changes apply from 6 April 2019.
The subject of pension transfers has been a hot subject in UK government circles for some time, and in recent months government officials have begun to talk about cracking down on what has become a large and growing industry.
In October, the FCA reported that it found that fewer than half of some 88 defined benefit transfers it had reviewed since October 2015 were genuinely “suitable”, while 17% were deemed unsuitable, and in 36% of the cases, it was unclear if the recommendation had been suitable or not.
To see the FCA’s statement on its website, click here.