Regulator adopts softer stance on final salary transfers

Marina Gerner
21 June 2017

The Financial Conduct Authority (FCA) has published new proposals on advice relating to pension transfers, primarily for transfers from defined benefit (DB) to defined contribution (DC) pension schemes.

Since the introduction of the pension freedoms in April 2015, consumers have more options available to access their pension savings. Initially, the FCA cautioned against recommending final salary transfers. But now the regulator has created proposals to reflect the increased demand for pension transfer advice.

The proposed changes include classifying transfer advice to be provided as a personal recommendation, and replacing the current transfer value analysis with a comparison to show the value of the benefits being given up.

Christopher Woolard, executive director of Strategy and Competition at the FCA, says: ‘Defined benefit pensions, and other safeguarded benefits such as guarantees, are valuable so most consumers will be best advised to keep them.’

However, he says the FCA recognises that the environment has changed significantly, so it wants to ensure that financial advice considers people’s circumstances in full and recognises the various options now available to them.

James Walsh, policy lead at the Pensions and Lifetime Savings Association, was one of many commentators to welcome the proposals. 

He says: ‘These proposals go a long way towards ensure savers understand the losses they could suffer by leaving defined benefit schemes. We know that transferring out of a defined benefit scheme may not be in the members’ interest. The new comparison (the Transfer Value Comparator) will help to focus members’ minds.’

Defined benefit pensions provide scheme members with a guaranteed income for life irrespective of how long their retirement might be. ‘Therefore, it is essential that this guarantee is not given up without serious consideration and that appropriate financial advice is taken before any decisions are made,’ says Walsh.

Steven Cameron, pensions director at Aegon says: ‘Against a backdrop of regulatory uncertainty, understandable reluctance from many advisers means the supply of advice is falling far short of demand, creating the risk that many individuals are not getting the support they need to make the right choice. The FCA consultation needs to make the market work for customers, allowing advisers to offer suitable and balanced advice that fully allows for the individual’s circumstances and wishes.

Cameron argues that if the primary objective is flexibility, advice shouldn’t be based solely on the likelihood the transfer value will secure an annuity at scheme pension age above the DB benefit given up.

‘Advisers quite rightly need to explore wider objectives and the additional value to the individual offered by pension freedoms, such as choosing when to start taking an income, how to shape income year on year and leaving funds to loved ones.’

Former pension minister Ros Altmann says the regulator is rightly recognising that the case against transferring out of DB pensions has radically changed. Each case should be considered individually to assess the benefits and risks for that person.

Altmann lists some of the main reasons for and against a pension transfer:

Strong reasons not to transfer will include:

  • If you are frightened that this decision is irreversible and you might regret it
  • If the DB scheme is your only pension
  • If you value the peace of mind of a guaranteed regular income
  • If you are concerned about inflation and have an inflation-linked DB pension
  • If you do not want to take investment risk
  • If you don't want to pay someone to manage a pension fund for you
  • If you might exceed the Lifetime Allowance and face a hefty tax charge
  • If you might lose enhanced protection

And there are some strong reasons why DB transfers make sense:

  • If you have several DB pensions, could transfer some and still retain guaranteed income
  • If you're in poor health and fear dying young
  • If you are single and have no use for spouse pension
  • If you want to pass any unused pension fund on tax-free to anyone you choose free of inheritance tax (and free of all tax if you die before age 75)
  • If you are happy to take some risk and want the chance to benefit from future tax-free investment returns
  • If you are comfortable with managing money or finding someone to do that for you
  • If you want a fund to help pay for care if needed (£20 a week DB pension could be worth £30,000-£40,000)
  • In some cases, if you have large debts, the money could help you to pay them off


This article was written for our sister magazine Money Observer.


In reply to by anonymous_stub (not verified)

I have subscribed to your excellent magazine for several years and have always found the articles informative and factual.

In reply to by anonymous_stub (not verified)

A softer stance is not before time. My original attempt at transferring my final salary pension failed because it could not be completed by beginning of April 2015 when the ill-considered rule change was made. Finding Financial Advice that would proceed with a transfer was near impossible. All Financial Advisers seem to think that the Pension Protection Fund is guaranteed whereas it is not. My Final Salary Pension was always likely to end up in the PPF and as my wife is already receiving her Pension from the same Scheme, we could have ended up with 2 compromised Pensions. Too many eggs in one dodgy basket is too high a risk. Luckily after 2 years wait and to my mind pointless Financial Advice the transfer paperwork went off last week. A regular income from a Final Salary Pension was never a great requirement, I would far prefer to draw untaxed income when required from my Equity ISA. Whilst I eventually had a Valuation with an 8% deduction due to the Pension Scheme being in deficit. My wife meanwhile has to hope the Scheme does not fall into the PPF before her 65th birthday in February otherwise she could be liable to a 10% deduction and a strong likelihood of many more Schemes swamping the PPF in the next decade making future Pension payouts problematic for both the PPF and the Government that originally set it up.

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