Summary

  • Under the pension reforms, holders of defined contribution pension schemes will have more flexibility in accessing their savings.
  • With this flexibility will be a requirement that the holder receives appropriate financial advice before making any decision about what to do with their pensions.
  • Through amendments to the Regulated Activities Order, ‘Advising on conversion or transfer of pension benefits’ will become a regulated activity.
  • The amendments to the Order will track definitions in the Pensions Scheme Bill, including ‘flexible benefits’, ‘safeguarded benefits’ and ‘subsisting rights’.
  • The FCA is expected to make rules and give guidance for firms that advise on pension conversion or transfer.
  • Royal Assent to the changes is expected by March. The commencement date is expected to be 6 April 2015.

Impact

  • If your firm is FCA authorised and wishes to advise on pension conversion or transfer, it will need to vary its Part IVA Permission to include the new activity.
  • If you intend giving advice on pension conversion or transfer and are not FCA authorised, you will need to apply to become authorised.
  • You will need to look out for the new FCA rules and guidance for firms that advise on pension conversion or transfer.

View the proposed changes.

Introduction

With pensions reform at the heart of the financial services agenda, the Treasury is proposing changes to the financial services regulatory regime to accompany the reforms under the Pension Schemes Bill.

The Bill is designed to create flexibility within the pensions regime, by allowing holders of defined contribution pension schemes to access their defined contributions savings rather than having to purchase an annuity.

Within the proposed reforms is a proposal that holders of defined contribution pension schemes should receive appropriate financial advice from independent organisations before making any decision about what to do with their pensions.

To give effect to theses proposals, the Treasury has published a draft of the Financial Services and Markets Act 2000 (Regulated Activities) (Amendment) (No 2) Order 2015.

Advice on transfer, conversion or payment of a lump sum

The effect of the Order is to amend the Financial Services and Markets Act (Regulated Activities) Order (the RAO), by inserting a new Article 53E. Under this new Article 53E, giving advice in relation to the transfer or conversion of a class of pension benefits will be a regulated activity.

In terms of the Order, any person providing advice on transferring from a defined benefit scheme to a defined contribution scheme will need to be Financial Conduct Authority authorised and have the appropriate permission under Part IVA of the RAO.

Advice will be regulated advice where:

  1. the advice is given to a person (P) in P’s capacity as
    1. a member of a pension scheme; or
    2. a survivor of a member of a pension scheme;
  2. P has subsisting rights in respect of any safeguarded benefits; and
  3. the advice is advice on the merits of P requiring the trustee or manager of the pension scheme to —
    1. convert any of the safeguarded benefits into different benefits that are flexible benefits under the scheme;
    2. make a transfer payment in respect of any of the safeguarded benefits with a view to acquiring a right or entitlement to flexible benefits for P under another pension scheme; or
    3. pay a lump sum that would be an uncrystallised funds pension lump sum in respect of any of the safeguarded benefits.

Defined terms

The Order defines ‘flexible benefits’, ‘safeguarded benefits’, ‘subsisting rights’, ‘survivors’, ‘cash balance benefit’ and ‘money purchase benefits’ to reflect those definitions in the Pensions Bill.

The Order also amends Article 82 (rights under a pension scheme) of the RAO, to restrict the application of the term ‘safeguarded benefits’ to the new Article 53E in order to avoid dual-regulation of pension schemes that offer safeguarded benefits.