FCA’s Policy Statement on the DB market

You will no doubt have seen that the FCA has released its Policy Statement on the Defined Benefit market.

At a high level, they have implemented pretty much everything that was proposed in the Consultation Paper. In particular, the key points are:

FCA's Policy Statement on the DB market

The FCA said that they listened to the concerns that a ban on contingent charging would result in some client’s being unable to get the advice that they need. They have therefore created a new category which they have named ‘carve-outs’, who can still receive advice on a contingent charging basis, although they require this to be broadly the same level of fee that they would’ve been charged if it was on a non-contingent basis.

Carve-outs have been split into two groups:

  • Those who have a specific illness or condition that causes a materially shortened life expectancy.
  • Those who may be facing serious financial hardship such as, for example, losing their home because they are unable to make the mortgage or rental payments.

Where a firm wants to rely on a carve-out for a client, the firm must satisfy itself that the client meets one of these requirements, which may include getting evidence from a registered medical practitioner around life expectancy.

We will be sharing more guides on the specifics of this with our clients and you can also see some of the concerns raised by our Director, Cathi Harrison, in this edition of Eclipse.

In addition, the FCA has launched an Advice Checker tool, to enable individuals to ‘find out if the advice you received was right for you, and what to do if you think it wasn’t’. We think this is a very, very, interesting development, and warrants its own blog – watch out for this next week.

* As a note, we have concerns around this. Many workplace pensions are extremely simple and, given the complexity involved in defined benefit transfers, depending on the level of the client’s assets they represent, it is very possible that they would require ongoing advice to ensure the funds remain appropriate. Nonetheless, the options must be fully and clearly reviewed with the least appropriate options being discounted with a full explanation of why.