A closer look at FG 21/3 – finalised guidance on transfers

In our recent article giving an overview of Finalised Guidance (FG 21/3), we indicated that we would pick out a few of the more interesting snippets for a closer look. That is not to imply that the rest of the guidance is of no interest, just a reflection that much of the guidance is a reiteration of rules and guidance that has been in place for a while and should be pretty familiar to firms and advisers involved in advising on defined benefit transfers. We would still recommend that everyone concerned with transfers reads the guidance paper though because different people might have differing views on what constitutes an interesting snippet!

In this piece, we take a closer look at permissions.

Clarification on permissions

  • DC Occupational Pension Schemes
    The pension transfer definition no longer includes transfers from non-safeguarded benefit schemes. This means that firms no longer need the limited permission to advise on transfers from DC occupational pension schemes without safeguarded benefits.
  • Advice to members re structure of benefits
    Firms do not need the permission at all if only advising the member on how to structure their DB scheme benefits, i.e. there is no advice on a potential transfer to flexible benefits.
  • Opt-outs
    Firms also do not need the permission at all for a pension opt-out where there would be no redirection of contributions to an FCA-regulated replacement scheme, for example for considerations around annual allowance or lifetime allowance.
    However, the permission might be required if the opt-out is followed by a transfer which effectively connects the pieces of advice together. For example, if a firm nudges a consumer to opt-out in order to get transfer advice.
    For clients who are active members of a scheme, it is permitted to give provisional advice based on an estimated transfer value. We will cover the broadened guidance around estimated transfer values in a future article.
  • Advising joiners
    Transfer permission is not needed to advise a client on whether to join a DB scheme.
  • Pension sharing orders
    Similarly, you do not need the permission if you advise an ex-spouse whether to use a pension credit awarded from a pension sharing order to acquire rights in a DB scheme. Where the ex-spouse has the option of becoming a member of a DB scheme, the pension credit is not regarded as safeguarded benefits (or money purchase or cash balance benefits) or a transfer payment but as a right in itself.
    Advising an ex-spouse on using the pension credit to acquire rights in a DB scheme, is NOT regulated by the FCA. However, advising the ex-spouse on acquiring rights in an FCA-regulated DC scheme requires the relevant investment advice permission.
    Finally, pension sharing orders are not covered by the requirement to take ‘appropriate independent advice’. This means that advisers are only advising on where the funds will be invested, not on the transfer itself. So, charges for advice about the receiving arrangement for a pension credit are not subject to the ban on contingent charging.
  • Annuities
    Arranging a transfer in order that the client can immediately buy an annuity is still likely to count as advice on giving up safeguarded benefits for flexible benefits. This is because the funds would usually go through a personal pension which pays out the pension commencement lump sum (PCLS) before the client buys the annuity.
    A transfer to an immediate vesting personal pension plan MAY count as a safeguarded to safeguarded transfer. However, if the annuity were to be cancelled within the cooling off period, and the ceding scheme would not accept the funds back, those funds would not be available for investment elsewhere until advice had been given.
  • SSAS
    When giving DB transfer advice where the destination is a SSAS, the adviser may still be responsible for the advice on the SSAS because the two pieces of advice are connected, even though advice on a SSAS is usually unregulated

Important Note: ATEB news is intended to provide general information ONLY. The content, including any views expressed or guidance provided, does not replace the need to comply fully with FCA Rules and Guidance. Unless you have discussed news article content with ATEB, and specifically how it relates to your circumstances, then ATEB disclaims all liability and responsibility and actions arising from any reliance placed upon it. For the avoidance of doubt therefore, any reliance you place on such information without our consultation is at your own risk.

ATEB Compliance offers compliance and regulatory advice.

ATEB Suitability provides report writing software for the financial services market.

Our View

We hope that these articles are helpful, but there is no substitute for reading the guidance … and the underlying rules. While much of the guidance is not new, it is helpful that it has been gathered together in one place. In addition, as indicated here, there is some very helpful new or expanded guidance around a number of aspects.

Action Required By You

Read the guidance and make sure that your transfer advice process is in line with the FCA’s requirements. Contact ATEB if you would like to discuss how we can help.
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About the Author

Technical Manager - Often referred to as the Oracle or the Sage, Alistair has a wealth of financial services experience. He is our go-to Technical Manager and enjoys nothing more than a complicated conundrum. Feel free to test his renowned knowledge by getting in touch.

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