FSA issues advice warning over DB scheme transfers

The FSA has issued a warning to advisers over occupational pension transfer deals after it became concerned over the quality of advice being given.

In a joint statement issued today with The Pensions Regulator, the body responsible for overseeing trust-based occupational schemes, the FSA said it had "concerns" over the quality of advice being given to members with regards to enhanced transfer value or incentive to transfer exercises.

In these exercises, firms with defined benefit (DB) schemes offer members the chance to transfer their benefits out to another scheme and will usually pay an enhancement or incentive to encourage them to do so.

But the FSA says it has particular concerns about whether the advice being given to members reflects the starting assumption that a transfer will not be suitable and whether firms are identifying and managing conflicts of interests that arise with this type of business.

The statement reads: "Pension transfer is a complex area and can be difficult for the member to understand. The risks of an unsuitable outcome may be increased by the fact that these exercises are unsolicited".

The FSA also reminded firms of their obligations under the client's best interests and pension transfer rules.

As part of today's update, The Pensions Regulator also issued strengthened guidance on this type of transfer following "concerning" behaviour from some trustees.

It says that, in order for transfer exercises to be conducted in an open, fair and transparent way, it now expected:

• members to be provided with clear information that is not misleading;
• members to be provided with impartial and independent advice to ensure they make the right decisions;
• trustees to engage in the offer process and apply a high level of scrutiny to all incentive exercises to ensure members' interests are protected;
• employers to ensure that any offers made are consistent with the principles in the guidance; and
• no pressure of any sort to be placed on members to make a decision to accept the offer.

The guidance will replace the TPR's inducement offers guidance in 2007 and is accompanied by a new e-learning module.