Defined benefit pension transfers – An update from the FCA The Insurance Institute of Sheffield Retirement and Investment Conference 20th September 2018

Learning objectives To: understand the FCA’s current supervisory approach to DB pension transfer advice. gain clarity on the key risks the FCA sees regarding DB pension transfer advice. understand the FCA’s expectations of firms that operate within the DB pension transfer market.

Agenda The current environment Expectations Supervisory work Thematic reviews BSPS Policy update PS18/6 CP18/7

Pensions environment Pension freedoms Economic drivers Employer promoted transfers Statutory advice requirement

Consumer behaviour Inherent biases Needs and Objectives Peer pressure Vulnerability to scams

Our expectations Transfer usually irreversible Informed client Role of Critical Yield Consider: Needs & Objectives Income need Receiving scheme Way funds will be accessed Alternative ways of achieving objectives

Thematic work Review changes in firms’ approach and practices Monitoring market since 2015 Identified firms increasing activity – 22 assessed File reviews for 13 firms and firm visits to 12 Serious concerns with half of the firms Four firms have chosen to stop advising Additionally our separate work on pension scams led to over 30 firms limiting pension transfer activity

Suitability findings from thematic work DB transfer file review outcomes – significantly fewer suitable cases, and very poor disclosure findings. Suitability 47% of transfer recommendations suitable 35% of receiving product/funds suitable Reasons for unsuitability Lack of sufficient ‘know your customer’ information Not considering clients needs as well as stated objectives Not assessing risk adequately Not providing accurate comparisons between the DB scheme and the recommended scheme

Scams Pensions are being targeted by fraudsters Tackling this is an FCA key priority We work with other agencies in a joined up approach Supervision of authorised firms Action on unauthorised firms Evolution of scams Role of the sector Consumer education - Scamsmart

British Steel Pension Scheme We have carried out: 4 seminars 14 firm visits (12 desk based reviews) 172 file reviews 34% unsuitable 10% failed to demonstrate suitability 13 firms have stopped advising on DB transfers Whistleblowing/intelligence

A balanced approach Sometimes we saw advisers failing to communicate about the advantages and disadvantages in a balanced way Client’s ability to manage large sums of money throughout retirement, charges and fees for advice Death benefits – most people need their pension for income Prioritisation

Business Models Specialist business model Relationship with introducing adviser Lack of information about clients Not aware of ultimate investment TVA based on default schemes and funds Inadequate resources Other firms providing advice Large local schemes Business planning and inadequate resources

Policy Statement on Pension Transfers - PS18/6 Good response to consultation CP17/16 We will proceed with most proposals with some refinements: Personal recommendation APTA/TVC with some clarification Role of PTS with clarifications Maintaining starting assumption on suitability Most changes apply from 1 April, APTA from 1 October

Further consultation – CP18/7 Reflected feedback to CP17/16 discussion questions Consulted on several areas: Raising qualification level for PTS (Level 4) Clarifying clients’ attitude to risk How to carry out an appropriate ‘triage’ service PTS and the two adviser model Policy Statement due in next few weeks

Charging models A discussion chapter in CP18/7 to gather views on: Impact of a contingent charging ban. How could a ban be implemented? What would be the effect of banning some charging models? Complex area – protect consumers/access to advice FOS/PI insures also focused on this area

Key takeaways & next steps Needs & objectives Balanced approach Whistleblowing Next Steps Implementation of Policy Statement Further thematic reviews Policy Statement due

Learning outcomes To: understand the FCA’s current supervisory approach to DB pension transfer advice. gain clarity on the key risks the FCA sees regarding DB pension transfer advice. understand the FCA’s expectations of firms that operate within the DB pension transfer market.

Questions …