The legal requirement for specific financial advice before a DB transfer can be implemented is particularly relevant here.
If fewer advisers are available to provide this advice, people may either be unable to transfer out of their DB pension or will only be able to do so at considerable cost.
The FCA references its advice-guidance boundary review at various points in the consultation paper.
However, it is difficult to see how the review can address this issue unless legislation is amended to remove the requirement for financial advice before a DB transfer.
This seems improbable given:
- the high risks associated with such activity; and
- the FCA’s broad stance that transferring a DB pension is unlikely to be in the consumer’s best interest.
What can firms do now?
Ahead of any regulatory change, firms can prepare in a number of ways:
1. Understand how redress works
The FCA is clear that in order to comply with consumer duty, firms must monitor consumer outcomes, handle complaints fairly and identify systemic issues in advice.
Firms are also expected to understand the risks they are exposed to and to hold appropriate financial resources to meet those risks.
Therefore, a key step that firms can take now – which would be advisable irrespective of whether the proposals set out in CP23/24 are ultimately implemented – is to gain a robust understanding of redress.
For firms that have written DB pension transfer advice this might mean training relevant individuals on the factors that influence redress.
2. Gather data about legacy pensions transfer advice
It is good practice for firms to keep records of the pension transfers they have advised on as they build a picture of their redress risk.
Pulling together summary data about each case (such as the transfer value paid, date of transfer and client’s age) is a good starting point.
For firms that have written DB transfer advice, it may be a good idea to start gathering more detailed data, such as information about the ceded pension, so that any holes in the data can be identified and steps taken to fill them.
3. Understand the magnitude of redress risk
It may be helpful, and a matter of good governance, to get a rough estimate of the redress risk the firm is running.
In the case of DB transfer advice, firms may want to speak to their actuarial advisers about how best to assess their exposure to redress.
There are cost-effective ways of doing this that do not involve a full redress calculation for each 'at-risk' case.
4. Speak to the PII insurer
Firms will need to understand their PII cover in order to integrate this into their calculations.
It is also crucial that firms make their PII insurer aware of any planned suitability reviews so they do not inadvertently trigger the exclusion of cases from PII cover.
