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The changes are designed to deal with the FSA’s concern that in most cases a pension transfer is not in the best interest of pension scheme members.
The FSA is raising the standards on the assumptions used when a pension transfer value analysis (TVA) is made. This will make it less likely that an adviser will be able to recommend a transfer from a defined benefit pension scheme to a personal pension. Respondents to the consultation welcomed the changes and there was broad support for updating and clarifying the assumptions.
Sheila Nicoll, director of conduct policy at the FSA, said: “In the vast majority of cases, someone in a defined benefit pension scheme will not be better off transferring to a personal pension. The new assumptions will make it tougher for advisers to make the case for a transfer. As a result of these new rules, we would expect the number of pension transfers to decrease, leaving pension scheme members better off.”
Transfer value analysis (TVA) is the process of comparing the benefits being given up from a defined benefit (DB) pension scheme with those that could be offered by a personal pension scheme, using reasonable assumptions. The FSA regards pension transfer advice as a complex, high-risk area and recommendations need to be signed off by a pension transfer specialist. So firms advising in this area must comply with additional rules and guidance in COBS 19.1, along with the general suitability rules in COBS 9. Given the high level of risk attached to giving up the fixed benefits associated with a DB scheme, the starting point for pension transfer advice is that a transfer will not be in the member’s best interests.