FCA hasn’t changed position over DB transfers – Rory Percival

The ex-FCA technical specialist argued the regulator had sent out some mixed messages in its consultation paper, although he praised its overall approach to the DB transfers issue.

The financial watchdog proposed dropping its starting assumption DB transfers are unsuitable, saying this would be replaced with a statement in its regulatory handbook explaining that, for most people, “retaining safeguarded benefits will likely be in their best interests”. It also stated this did not represent a “softening” of its position.

Percival, who on Monday predicted the FCA would not change its stance, said: “It says they start from an even-handed position but there’s guidance that says you should take note of the fact for the majority of people it’s best to stay where you are. I’m not entirely sure it’s actually a practical change to any significant degree at all.

“In practice, even though they said they have, I don’t think they’ve changed their position.”

The regulator was certainly clear, however, on how it changed its proposed stance to the transfer value analysis (TVA) advisers must undertake with DB transfers, and Percival suggested they had dealt with it “in quite a sensible way”.

The FCA proposed replacing the TVA with an appropriate pension transfer analysis (APTA), which includes a cashflow plan and a more prominent focus on the capital values of the existing scheme versus the pot.

Percival said: “People are still saying that is comparing with an annuity – but that’s missing the point. The table [comparing the value of the existing scheme against a transferred pot] is showing you the value of the benefits you are giving up.

“Comparing those capitalised values is using simpler numbers the client can understand better. The FCA has flagged up clients not understanding critical yields. Overall I think it’s pretty good.”

Contingent charging

Speaking at The Great Pension Debate on Monday Percival warned advisers charging on a contingency basis for DB transfers were subject to a conflict of interest, arguing it is a subconscious problem.

The FCA did not mention contingency charging in the consultation paper, however, and Percival reckoned the regulator had missed an opportunity to talk about things firms should be doing more broadly in the advice process.

He said he hoped they would address it in the future, adding it was something that “needs to be managed”.

“I think there should have been a chapter on systems and controls, risks arising, the biases involved and the need to manage those biases,” he continued.

“They flag up those risks in the cost-benefit analyses but I think it would have been better to have a chapter talking about risks in firms.”