The Financial Conduct Authority (FCA) is implementing a raft of reforms around pension transfers in the UK to ensure that savers are fully informed before making transfer decisions and are transferring for the right reasons.
The key proposals include the following:
Mandatory information sharing
The FCA proposes that receiving pension schemes must provide detailed information about individuals' existing pension arrangements before the transfer can be completed.
The information will have to be consolidated into a single, clear information pack, allowing customers to easily compare information relating to their existing and prospective pensions, such as charges. Ceding schemes will have to be ready to provide this information when asked for it.
Improvements to online pension planning tools
The FCA said it recognises the need for enhanced digital tools to assist consumers in their retirement planning, so has proposed that firms will be allowed to develop and offer more comprehensive online tools that provide projections and facilitate better engagement with pension options.
These tools should clarify the potential impacts of various choices, such as increasing contributions or adjusting retirement timing, on overall retirement outcomes.
The regulator said: "We are proposing a new regime for interactive digital pension pension planning tools for in-force pensions. This will give firms flexibility to tailor the projections in interactive digital tools to the understanding and engagement needs of their target market."
Scrutiny of pension transfer incentives
The FCA added that it is closely examining the use of cash incentives to encourage pension transfers, but said it will not explicitly ban them. Instead, it said it expects its other proposals will 'limit' their usage, and it will monitor this to see if further action needs to be taken.
It said: "At this stage, we are not proposing an explicit ban on incentives. We believe that following the Consumer Duty will effectively limit their use in the non-advised market (where no professional advice is given). However, we will monitor how the market responds to the new rules and may make further changes if needed to protect consumers."
What does the industry think?
Jon Greer, head of retirement policy at Quilter, said the proposals are positive in terms of consumer protection, but will come with the obvious trade-off of slowing down pension transfers even further.
He said: "These FCA proposals are a welcome step toward making pensions clearer and safer for everyday savers but they do come with trade-offs. The second change proposed could cause non advised transfer times to slow significantly.
"If implemented well, these changes mean clearer tools and fewer nasty surprises. But it also means quite a significant overhaul in processes which is likely to have broad knock-on impacts on the swiftness of transfers in the future as providers will have to prioritise the provision of information perhaps in advance of completing actual transfers."
Alex Campbell, head of external affairs at Freetrade, echoed that these extra steps could drag out the pension transfer process. "This is a common sense approach to communication with customers about defined contribution pension transfers," he said.
"However, it doesn’t solve the biggest issues facing savers today: sludge practices. While the best pension providers will see the new rules as an opportunity to accelerate transfers to benefit consumers, we are concerned that the industry’s laggards will use them to drag out processes, extending timelines which can already stretch to months.
"These lengthy timelines frankly can deter savers from even considering engaging and reviewing old pensions, making the issue of under saving for retirement even more entrenched."
