30 March 2021
New guidance published today on the Pensions Regulator’s website, and produced jointly by FCA and TPR will provide ‘welcome clarity’ to employers and DB pension trustees over what help they can give to members over pension options, according to LCP partner Steve Webb.
In an earlier consultation (GC20/1), the FCA had sparked concerns that pension schemes who provided members with modelling tools, allowing members to compare their entitlement within the scheme alongside potential annuity and drawdown options if they transferred out, could be crossing the line into providing regulated financial advice. In response, some law firms even suggested that providing members with unsolicited transfer value quotes could now cross this line.
The phrase in the original FCA consultation which gave cause for concern was:
“Some employers and trustees want to give their scheme members illustrative figures that compare the outcomes a member might get if they keep a safeguarded benefit or transfer/convert it into flexible benefits. But this kind of analysis might steer a member towards a specific course of action, which is part of the regulated advice process. As a result, we consider that providing such figures could mean that firms are likely to be giving advice or an inducement. If an employer or trustee provides a transfer value comparator, in accordance with the FCA’s rules, they should consider whether they are doing it by way of business and need FCA authorisation”. (GC20/1 Annex 2)
However, the new document makes clear that:
- Schemes can provide transfer value quotes (CETVs) including to members who have not requested one
- Schemes can provide an estimate of the annuity which a member could buy today if they were to transfer out today; but drawdown illustrations are not allowed as they are regarded as too speculative;
- Schemes can appoint IFAs to help members make good choices – the document recognises that schemes: “may be in better position to identify a suitable firm with the relevant permissions and better able to negotiate good terms with that adviser than individual employees or scheme members” (p6)
Commenting, Steve Webb, partner at LCP said:
“In a world of pensions freedoms, scheme members can have a wide range of options both within their existing DB scheme and by transferring out. Most forward-thinking trustees and employers want to help their scheme members to make good choices but some are nervous that in doing so they may be crossing a regulatory boundary. This new guidance provides welcome clarity and shows that schemes can help in a range of ways, from appointing IFAs for members to use to providing illustrations for members of their options within and beyond the scheme. This new clarity should lead to a growth in the number of trustees providing help and guidance for members around their pension options”.