Global menu

Our global pages

Close

New FCA and Pensions Regulator guide on supporting members with financial matters

  • United Kingdom
  • Pensions

09-04-2021

 

Summary

The Pensions Regulator and the Financial Conduct Authority (“FCA”) have issued welcome guidance in the form of their joint guide for employers and trustees (the “Guide”), outlining when employers and trustees can give information to / support members with their pension scheme decisions without straying into needing FCA authorisation (something trustees generally won’t have).

This speedbrief focuses on what the Guide says about trustees and employers providing information to scheme members in relation to transferring their defined benefit (“DB”) benefits. In particular, much of the previous uncertainty in relation to providing unsolicited transfer values, websites and modellers has now been resolved.

Background

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, a shrinking independent financial adviser (“IFA”) market, costly advice and rising scam activity. Three ways they have done this are:

  • offering retirement modellers – these vary but can include an example comparison of the cash equivalent transfer value offered by the scheme against what the member’s transfer value could ‘buy’ them elsewhere
  • providing an unsolicited transfer value (i.e. without the member having specifically requested one) as part of the information in pre-retirement communications - see our 2018 joint policy paper for more information
  • facilitating access to an IFA for members coming up to retirement or those considering transferring from DB to defined contribution (“DC”) schemes, with appropriate safeguards in place – see our 2020 briefing for more information

Trustees and sponsors must always be mindful not to promote a particular option as this could be a “financial promotion” which must generally be made or approved by an FCA authorised firm. In addition, trustees and sponsors must be mindful not to stray into giving “regulated advice” or “arranging deals in investments” both of which are regulated by the FCA. Undertaking any of these activities in breach of financial services legislation not only carries financial and reputational risk but is also a criminal offence. There are also some other complex non-FCA-related issues to navigate, which are not addressed in the Guide.

An annex to FCA consultation GC20/1, issued in June 2020, contained a draft guide for employers and trustees on providing support with financial matters without needing to be subject to regulation (“Draft Guide”). This was a proposed update to its guide of the same name, issued jointly with the Pensions Regulator in 2017. The Draft Guide raised two key concerns:

  • first, it indicated clearly that offering retirement modellers could be considered regulated advice
  • secondly, it suggested (less clearly) that providing an unsolicited transfer value might be considered regulated advice

As a result, many trustees and employers ceased to offer retirement modellers and were also more cautious around providing unsolicited transfer values, for fear of breaching FCA rules. We (and others) responded to the consultation to raise our concerns about this. For more details, see our previous speedbrief.  

The finalised Guide was issued on 30 March 2021, alongside the FCA’s guidance (FG21/3) on advising on pension transfers, which focuses on the processes financial advice firms should put in place to give suitable advice on transfers from DB to DC schemes.

What does the Guide say?

Unsolicited transfer values

The guide helpfully confirms that “[y]ou may also give transfer values if the member hasn’t asked for them”, subject to certain safeguards. It recommends first considering whether this is likely to result in good outcomes for members and suggests giving some context to help members understand the relationship between the transfer value and scheme benefits. 

Retirement modellers

Increasing numbers of schemes either use, or have been exploring using, retirement modellers on their websites to help members understand their different options.

The Guide throws up concerns about retirement modellers. It seems comfortable with these showing the member factual information about their scheme benefits. They can also (within limits) show a member who has reached minimum retirement age the level of income that could be provided by a lifetime annuity which is currently available on the open market using their transfer value (but not information about future annuity costs, which would involve making assumptions).

However, the Guide says that employers and trustees should not give members illustrative (as opposed to factual) figures that compare the outcomes they might get if they keep a DB benefit or transfer it to a DC arrangement. This kind of analysis might steer them towards a specific course of action, which is part of the FCA regulated advice process.

A value is illustrative in this context if it uses assumptions about the future, for example assumed investment returns or inflation. The Guide suggests that context could instead be provided by information on average life expectancies, typical payment periods and the effect of pension increases.

The Guide emphasises that, unlike quotes on currently available annuity prices, information about future drawdown is not factual as it depends on assumptions.

It would however be permissible to signpost members to annuity comparison or drawdown tools on the government’s Money Advice Service or PensionWise websites. If signposting to similar tools on the websites of FCA-regulated firms, that could amount to an FCA regulated activity. 

Facilitating IFA advice for members

The guide also confirms that employers or trustees facilitating IFA advice for members is unlikely to be an FCA regulated activity if appropriate safeguards are put in place. One of the suggested safeguards is using IFAs who offer the full range of available financial products, rather than “restricted” advisers. This echoes what the Pensions Ombudsman said in his recent guidance on panels and independent financial advisers and the approach we suggested in our 2020 briefing and 2019 joint policy paper.

What should trustees and sponsors do about this?

The Guide helpfully confirms that it is open to schemes to provide transfer values to members who have not asked for them. This is subject to giving appropriate factual context and avoiding making assumptions about the future. This will be welcome news for many schemes.

Retirement modellers are, however, a more grey area, and we recommend getting advice on the boundaries of what can be provided without straying over the line into needing FCA authorisation.

The Guide also provides some helpful pointers for trustees and sponsors wishing to help their members with IFA advice on retirement options and DB to DC transfers. This is a complex area, however, and advice should be sought at the very early planning stages.

If you would like to hear more about this you can listen to Charlotte Cartwright (Legal Director at Eversheds Sutherland), together with Steve Webb, (Partner at LCP and former Pensions Minister), Jonathan Camfield (Partner at LCP) and Edwin Schooling Latter (Director of Markets and Wholesale Policy at the FCA) discussing “What can DB schemes do to help members make good choices?” at 11am on 19 April 2021. To register for this webinar, hosted by LCP, please click here. Please note that your contact details will be stored by LCP for the purpose of this webinar.