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FCA pension transfer consultation: the devil is in the detail

  • United Kingdom
  • Pensions


Financial Conduct Authority (FCA) consultation GC20/1 focuses on the processes financial advice firms should put in place to give suitable advice on transfers from defined benefit (DB) to defined contribution (DC) schemes.

This sort of publication, aimed primarily at financial advisers, would not normally be of keen interest to trustees or sponsors of occupational pension schemes. However, this consultation contains statements that could affect the way trustees and sponsors can communicate with members about retirement and transfer options. In particular, it raises potential issues around providing transfer value comparators and unsolicited transfer values.


The pension freedoms introduced in 2015, together with increasing DB transfer values, have motivated large numbers of members to transfer benefits from their DB schemes to less certain but more flexible DC arrangements. Those with DB benefits worth over £30,000 in their scheme are required by law to obtain advice from an independent financial adviser (IFA) before they transfer.

This issue came into particularly sharp focus following the British Steel Pension Scheme restructuring exercise in 2017/18. The ensuing Work and Pensions Select Committee inquiry and Rookes report both expressed grave concerns over the inadequate support received by members in deciding whether or not to transfer out their benefits.

The FCA has since taken various steps to address unsuitable practices in this area. FCA consultation GC20/1 is the latest in a series of detailed documents aimed at IFAs providing advice on DB to DC transfers, including PS20/6, which was issued in June 2020 and introduced the contingent charging ban.

Although the majority of consultation GC20/1 is aimed firmly at IFAs, Annex 2 (easily missed, starting at page 78) is a draft “guide for employers and trustees on providing support with financial matters without needing to be subject to regulation” (Draft Guide). This is a proposed update to its current guide of the same name, issued jointly with the Pensions Regulator in 2017.

What is the potential problem for trustees and scheme sponsors?

Many trustees and sponsors have looked for ways to go beyond their (limited) statutory minimum duties and equip members with useful information to help them make well informed retirement and transfer choices - against a background of confusing pension freedom options, costly advice and rising scam activity. This has included one or more of the following:

  • a) providing an illustrative transfer value as part of the information in pre-retirement communications (without the member having specifically requested one) – see further our 2018 joint policy paper
  • b) offering transfer value comparator (TVC) tools. A TVC is a comparison of the cash equivalent transfer value offered by the scheme against the cost of buying the same income via an annuity at retirement. The purpose of the TVC is to give some context to the transfer value
  • c) facilitating IFA advice for members coming up to retirement or those seeking to transfer from a DB to a DC scheme, with appropriate safeguards in place - see further our 2019 joint policy paper

Trustees and sponsors must always be mindful not to promote a particular option or stray into giving FCA “regulated advice”. Giving regulated advice without obtaining FCA authorisation not only carries financial and reputational risk but is also a criminal offence.

The Draft Guide contains some helpful updates but it also says (at page 82):

“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 [i.e. DB] benefit or transfer/convert it into flexible [i.e. DC] 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.”

This causes concern for (b) and potentially (a) above. To clarify, the Draft Guide does not raise concerns in relation to (c).

The FCA considers that where TVCs are provided by financial advice firms, this will be regulated advice. It also indicates that where trustees or employers provide a TVC for scheme members, this would be considered regulated advice if provided “in the course of business”. As we explain below, this test is not easy to interpret with certainty and this has led some trustees to reconsider providing TVCs for their members. This feels completely counter-productive.

The Draft Guide is – as one would expect – clear that trustees who provide a member with a transfer value once a year in line with statute will not be caught as regulated advice. But the paper is silent on whether trustees who go beyond this and provide unsolicited transfer values could fall the wrong side of the line.

What should trustees and scheme sponsors do about this?

It seems apparent that TVCs are likely to be considered regulated advice by the FCA. Trustees or employers could certainly argue that they are not providing a TVC “in the course of business” and are therefore not caught by the definition of regulated advice. However, this test is difficult to interpret and fact specific - regularity is one factor here. We consider that there is a material risk that a TVC (or other similar modeller) presented, for example, as part of the retirement process could fall foul of the FCA rules, potentially exposing the trustees or employer to sanctions. We would therefore suggest that schemes offering TVCs or similar modellers cease to do so, at least until the FCA’s position becomes clear.

The FCA’s views on unsolicited transfer values are less clear. We see the risks here as lower, although not non-existent. Schemes and employers should take their own legal advice on the point (so that they have an audit trail if challenged by the FCA), but we believe that schemes which already provide unsolicited transfer values as part of wider communications about scheme benefits can probably continue to do so whilst the consultation is running. Any transfer value information should be provided in a balanced and appropriate way and trustees and employers should review their practices in line with the FCA’s final view when it is published.

This consultation closes on 4 September 2020 and the FCA plans to publish its finalised guidance during the first quarter of next year. The final position may therefore not become clear for six months or longer.


In our own experience, comparators, modellers and illustrative transfer values are provided in order to help members reach better informed retirement decisions. Inevitably, there will be isolated examples of poor practice but we do not see that this should prevent responsible trustees and employers from seeking to help members, in an appropriate and suitably structured way, with what could be the most important financial decision of their lives.

We plan to respond to the FCA’s consultation to put forward this view. If you feel strongly about this, you may wish to express your views too, noting the closing date of 4 September 2020.