Pension Transfer Advice Consultation Paper 19-25 – part one

The intended proposals

The purpose of the consultation paper is for the FCA to inform you of their intended proposals and for advisers to have the opportunity to give their thoughts and comments. This is part one of a two-part blog – so make sure you catch up on part two once you’ve finished reading.

Main proposals

The main proposals were:

  • Pension Transfer Specialists (PTS) will be required to complete 15 hours of additional CPD
  • New RMA reporting requirements
  • A ban on contingent charging, except in a few specific circumstances
  • Introduction of abridged advice
  • Amendments to the way that firms’ complete triage
  • Defined benefit (DB) pension transfer advice should not cost more than £3,500

Our thoughts?

In October last year, the FCA said that there was no evidence that “contingent charging is the main driver of poor outcomes for (Pension) clients”. Now nine months later the FCA is consulting on banning contingent charging.

Contingent Charging

Contingent charging means a client only pays for the advice if they go ahead with the transfer. The FCA is concerned this could create a conflict of interest and lead to more people being told to transfer than actually need too. The FCA estimates that 69% of clients who have been advised to transfer their pension should not have done so. With one of the main causes of this being the fees which adviser earn from the transfer.

If the consultation is enacted, in general, contingent charging will not be permitted, there are however some exceptions (Carve Out Exemption):

  • Specific Illness which materially shorten a client’s life
  • The client is suffering from financial hardship

If you have a client which you think meets the above criteria’s then the client must be under 75 and you will need to request evidence from their GP/bank statements to confirm their personal situation.

Where your client meets these criteria’s, you can still use contingent charging.

The alternative they have suggested is to charge the same amount for advice, regardless of whether a transfer takes place or not.

If this is implemented, the commencement date will be within one week of confirmation of the new rule!

Additional CPD requirements

If you are a PTS you will be required to complete 50 hours of CPD a year! In addition to your existing 35 hours, your existing professional body requires, you will now be required to complete a further 15 hours of PTS specific CPD per year!

Out of these 15 hours, 5 of them need to be from external parties so that you have a balanced industry view. If this requirement is implemented, we will be looking to provide specific PTS CPD events to help you meet these additional CPD hours.

If you break it down, the 50 hours work out at an hour per week which is not a lot of time to set aside for CPD. It does however become a lot if you were to leave it all to the end of the year to complete.


The use of triage in pension transfers has become commonplace and is a useful tool to help clients and you decide if they are suitable for advice.

The regulator has found that in some cases, the use of triage has drifted into assessing a client’s suitability and as such could be considered as providing advice.

To reduce the risk of inadvertently providing clients with advice, it is proposed that the use of decision trees and traffic light-based risk assessment questionnaires will not be permitted in triage.

Triage now needs to focus solely upon providing factual, balanced information on the advantages and disadvantages of pension transfers and conversions, and the requirement to obtain advice.

Abridged Advice

The regulator has proposed a new half-way house for clients where triage and full detailed pension advice may not be suitable.

The purpose of this new form of advice is to further filter out those clients whom a recommendation to transfer a pension would not be suitable. Abridge advice will include:

  • Conduct a full fact-find
  • A high level of health information to ascertain if the client has a materially reduce life expectancy
  • An assessment of the client’s attitude to transfer risk to assess suitability, including their capacity for loss
  • The client’s attitude to investment risk
  • Relevant knowledge and experience of investments
  • High-level understanding of the client’s financial and family situation (including other pensions and savings)

There are only two outcomes to Abridged Advice, either the client is suitable for a pension transfer and as such the advice journey will progress to you providing full advice or you will identify that the client is not suitable for a pension transfer and as such the discussion will end. Scenarios, where this new form of advice may apply, include where a client has only one pension and isn’t financially experienced.

The introduction of a further advice type in an already complex area for clients seems to be counterproductive by the regulator. Instead of a client attending a meeting to discuss their pension transfer and having the suitability of the transfer assessed and a recommendation to transfer or stay being made, advisors have now reached a game of snakes and ladders wherein a majority of cases the advice progress sends the client back to the start rather than providing them with a helpful ladder to their retirement.

Confused about where this new advice process appears in the client journey? The FCA has created this helpful infographic:

Pension Transfer Advice Consultation Paper 19-25 - part one

So that’s part one of this blog wrapped up… read part two here, where we look at Workplace Pension Scheme & Ongoing Charging and discuss what you need to do now.