FCA Proposes Pension Risk Transfer Changes

UK pension watchdog the Financial Conduct Authority (FCA) is considering making changes to pension risk transfers.

In a consultation paper published Monday, the FCA seeks to raise qualification levels for pension transfer specialists so they may possess the same qualifications as an investment advisor, as well as a requirement for firms to provide suitability reports regardless of advice results with clients.

“Defined benefit pensions are valuable, so most people will be best advised to keep them,” Christopher Woolard, FCA’s executive director of strategy and competition, said in a statement. “However, where people are considering a transfer, it is vital that they get good advice to enable them to make an informed decision.”

The FCA also addressed several guidance-related proposals in the consultations. This includes clarification guidance for the watchdog’s expectations for advisors to determine how clients feel about the risks associated with pension risk transfers. Another guidance measure is for firms to show how they can conduct a proper introductory conversation with potential customers without overstepping their advisory boundaries, known as a “triage” service.

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Another proposal being considered is the banning of “contingent charging,” where clients will only pay for advice should they transfer their pension pots. The FCA noted that the continent charging model could possibly allow for a firm to offer poor advice to consumers in order to profit, as the firms would lose their credibility if they didn’t recommend a minimum number of transfers each year.

“We consider that these areas are linked, in that the existing starting assumption could be perceived as countering the incentive to give unsuitable advice created by a contingent charging model,” the paper read.

The paper continues the work the watchdog began in June 2017, when the FCA proposed changes to pension transfers, primarily focusing on defined benefit schemes transferring to defined contribution schemes.

“We are also looking at whether further changes are needed to improve the quality of advice in this area,” Woolard said. “In particular, we recognise that there is an inherent conflict of interest when advisers use a contingent charging model, so we are asking for views on whether we should ban contingent fees for pension transfer advice. Defined benefit pension transfer advice continues to be a key area of focus for the FCA.”

Tags: Financial Conduct Authority, Pension, Pension Transfer, UK

The Universities UK (UUK) board has agreed on a proposal to resolve its pension dispute with the University and College Union (UCU). UCU branch representatives will meet March 28 to discuss members’ feedback, following which the union’s higher education committee will meet to set out the next steps.

The dispute stems from the UUK’s attempt to end the defined benefit element of the Universities Superannuation Scheme (USS) pension and replace it with a defined contribution retirement plan. The move spurred UCU members to hold strikes at 61 British universities.

The new proposal calls for the creation of a jointly agreed expert panel comprised of actuarial and academic experts nominated in equal numbers from both sides. The panel would be tasked with hammering out key principles to underpin the future approach of UUK and UCU to the valuation of the USS. In order to facilitate this, the current deal in terms of contributions into USS and pension benefits will remain in place until at least April 2019.

In particular, the panel would focus on reviewing the basis of the pension plan valuation, assumptions, and associated tests. There would also be a jointly agreed chair whose first step would be to oversee the agreement of the terms of reference, the order of work, and timescales with the parties. The recommendations put forward by the group would have to be based on a majority view of the panel, without the use of a casting vote. Additionally, a secretariat, jointly agreed by the parties, would be appointed.

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“Of course we welcome any acceptance by UUK that the valuation should be looked at again,” said Sally Hunt, general secretary of the UCU, in a letter to union members.

“However, for any such process to have the confidence of the sector, the panel and its terms of reference must be jointly agreed between UCU and UUK rather than imposed by one side on the other.”

Hunt said the work of the group will reflect the desire of the union members to have a defined benefit pension.

“The panel will make an assessment of the valuation,” said Hunt. “If in the light of that contributions or benefits need to be adjusted in either direction, both parties are committed to agree to recommend to the JNC [joint negotiating committee] and the trustee, measures aimed at stabilizing the fund to provide a guaranteed pension broadly comparable with current arrangements.”

Hunt added that both sides agree to continue discussions on comparability between the Teachers’ Pension Scheme (TPS) and USS, alternative scheme design options, the role of government in relation to USS, and the reform of negotiating processes to allow for more constructive dialogue in the valuation process.

“We have worked hard to gain these concessions, but they were won on the back of the strike action that so many of you have taken,” said Hunt. “As always, it will be for members to decide whether what has been achieved is sufficient to suspend our strike action.”

Tags: Pension, strikes, Universities UK, University and College Union