FSA pension transfer advice falls short of the mark

Thanks to Keeley Makin, Head of Pension Technical at Simplybiz, and one of my colleagues on the Specialist Pensions Forum, for bringing the FSA’s latest leaflet to my attention. It’s on one of my favourite subjects – pension transfers – and gives a detailed guide as to what financial advisers can and can’t do.

There are a couple of issues that I disagree with that are contained within the leaflet, but I’ll write about those another day. However, as Keeley spotted, the FSA has deemed that a transfer from a Section 32 Buyout which does not contain guaranteed or fixed benefits to a PPP is not deemed to be a ‘pension transfer’.

There are many of those policies about, mainly where transfers had previously been effected from contracted-in schemes.

What the FSA appears to have missed is that for some of those specific Section 32 Buyout policies that were pre A-Day, the tax free cash can often be higher than 25% of the fund value (which is what would be available post transfer to a PPP). Indeed, I’ve seen S32’s where 100% of the fund could be taken as cash at retirement and that protected cash lump sum would be lost on a subsequent transfer.

So, financial advisers need to consider whether to treat those cases as though they were ‘pension transfers’ for the purpose of record keeping, compliance and PI regardless of what the FSA determines acceptable. Judging from a couple of replies from SPF members so far, it seems the majority will be doing just that - treating that type of advice as a ‘pension transfer’ doing best by their clients and covering their own backs at the same time. See:

Pension transfers - who can do what and when (Financial Services Authority)

(6 pages)