Technical Bulletin: 30 June 2015
In a world where change is the only constant, we help you keep on top of the developments in financial services regulation, legislation and environment.
Here are June’s developments:
1. New rules on advising on transfers
On 8 June 2015, two months after the introduction of the pension freedoms, the FCA published its response to its consultation on advising on transfers – PS15/12.
Since 2011 the FCA only required a pension transfer specialist (PTS) to be involved in the advice where a transfer was made from an occupational scheme to a personal pension. A PTS was not required if the benefits were ‘immediate vesting’. Equally if it was not from occupational to personal pension then it was deemed a pension switch and didn’t require a PTS to be involved.
The FCA is now making significant changes to this regime, widening some definitions and narrowing others to fit in with the pension freedoms and the changing nature of schemes. This amounts to a new regulated activity of ‘advising on conversion or transfer of pension benefits’.
PS15/12 covers the requirement for all those transferring out of a scheme with safeguarded benefits and a transfer value of £30,000 or more to seek advice on the transfer.
Guaranteed annuity rates
The new rules cover safeguarded benefits - a term introduced by the Pensions Schemes Act 2015 – and defined as all benefits that are not money purchase benefits or cash balance arrangements.
This term could possibly include a promise of a guaranteed annuity rate (GAR) at retirement. In theory these are money purchase benefits but the guarantee could lead them to be seen as a safeguarded benefit.
The FCA has decided to exclude GARs from its new specified activity. It sees the issues surrounding the transfer of a GAR to flexible benefits as being less complex than a transfer of a final salary scheme. A PTS is therefore not required, although advice will still be required if the benefit being given up is valued at more than £30,000.
However, it’s worth noting that it’s the actual value of the GAR and not the transfer value of the fund which needs to be below £30,000. For example, a £20,000 fund incorporating a GAR which is worth double the current annuity rates would have a value of £40,000, and would therefore require advice.
A factsheet issued by the previous regulator the Financial Services Authority (FSA) in 2011 made it clear that advising on a pension transfer did not need to be checked by a PTS if the member was immediately crystallising benefits.
The pension freedoms are expected to lead to a rise in people transferring from final salary schemes at retirement to access the new flexibilities. The consultation proposed and has concluded that these transfers should now be checked by a PTS to protect consumers.
A transfer value analysis will still be required for cases where the transfer and immediate vesting is not at the final salary scheme’s normal retirement date.
Previously, there wasn’t requirement for a PTS to be involved where the transfer was from one occupational scheme to another. However, under the new regime the type of scheme is not a differentiator; it’s all about the move from safeguarded benefits to flexible benefits.
This means that a transfer from an occupational scheme with safeguarded benefits to another occupational scheme with flexible benefits will now need PTS involvement. In addition, a transfer from an occupational scheme with no safeguarded benefits to a personal scheme with flexible benefits will now not require a PTS (whereas previously it would have done).
Even a move from one part of a scheme that has safeguarded rights to a part that has flexible benefits will require a PTS to be involved in the advice.
Benefits less than £30,000
The Pensions Scheme Act 2015 requires advice has to be given where the benefits in question are worth more than £30,000. However, should advice be given on a transfer where the benefits are worth less than that, then the PTS rules still apply - there is no exemption from the FCA rules based on fund size.
The Intelligent Pensions View
We welcome the changes to the transfer rules. With new flexibility on when and how people can access their pensions, this update in rules is needed to protect consumers from possible mistakes.
However, this is an evolving area and we would welcome further clarification from the Department for Work and Pensions (DWP) of exactly what constitutes ‘safeguarded rights’. In addition, the FCA is considering a possible review of the transfer value analysis requirements and this will help give clarity to this overall area.
2. Changes to the approved QROPS list
HMRC has continued its pursuit of Qualified Recognised Overseas Pension Schemes (QROPS) which allow access to benefits before the age 55, other than on the grounds of incapacity or serious ill-health. It has removed from the approved QROPS list some schemes from Australia, New Zealand and Canada as they allow access on the grounds of financial hardship. It has also removed some Irish schemes which have a minimum pension age of 50. Only one Australian scheme is now left on the list.
Pension scheme trustees faced with a transfer request to a QROPS should carry out reasonable due diligence to satisfy themselves that the transfer will be a recognised transfer.
3. Ros Altmann’s maiden speech to the Lords
On 19 June, the new Pensions Minister made her maiden speech to the House of Lords on private and state pensions. In it she emphasised her motivation to try to make pensions work better for people, to engage them and educate them.
Baroness Altmann covered three areas in her speech:
- She wants to improve communications around state pensions and she also announced a review in 2017 to consider longevity and other social factors.
- She wants to continue the work of automatic enrolment and although is conscious of the position of micro-employers she didn’t announce any changes to help them.
- And finally, she is keen to make sure everyone can access pensions freedoms.
We hope you find the above information helpful and useful. If you have any questions or need further details just get in touch: