Of general interest to all schemes is the Financial Conduct Authority’s (FCA’s) publication of its consultation on the new guidance guarantee which ties in with the new Budget flexibilities which will be in place by April 2015. The deadline for responses is 22 September 2014.
The FCA has also published a consultation paper on draft rules for the establishment of independent governance committees for the providers of workplace personal pension schemes and a detailed report on enhanced transfer values.
FCA publishes consultation on the guidance guarantee
The first publication from the FCA is a consultation on Retirement reforms and the Guidance Guarantee (CP14/11). This is intended to be read in conjunction with the Government's formal response to its March 2014 consultation on pensions reforms, Freedom and choice in pensions.
The Government has decided that the guidance guarantee will be provided by organisations that are independent and that have no conflicts of interest, referred to as “delivery partners”. These organisations will not be FCA-authorised, but will be expected to comply with a set of standards that are to be drawn up and monitored by the FCA. The guidance guarantee service will be funded by a levy on the financial services industry.
In CP14/11, the FCA sets out its proposals in relation to three key issues:
- the proposed standards applying to those delivering the guidance guarantee;
- how the funding levy for the guidance guarantee will be collected; and
- changes to the FCA Handbook to reflect the guidance guarantee and the Government’s other pensions reforms.
The deadline for responses to CP14/11 is 22 September 2014. The FCA intends to publish final standards and rules in a policy statement in late autumn 2014. It will publish draft rules for the levy in its annual fees policy consultation paper in October 2014.
View the consultation paper.
FCA reports on enhanced transfer values (ETVs)
The second, a thematic review on Enhanced transfer value pension transfers (TR14/12), summarises the FCA’s findings on the suitability of bulk pension transfer advice provided by financial advisers where employers offered an enhancement to the transfer value (ETV) available to incentivise current and former employees to leave their existing DB pension schemes.
The FCA appointed an independent consultant to review a sample of 300 case files from a significant proportion of the firms known to have provided bulk ETV pension transfer advice in the period from 2008 to 2012. The review assessed two areas for each case file. The first area assessed was whether the recommendation provided, and the advice process that the member was put through, resulted in a suitable outcome in the member's individual circumstances. The second area assessed was disclosure (that is, the way the financial adviser communicated with the member), where the FCA considered whether the process that was followed was appropriate relative to the guidance in place at the time, whether the appropriate rules had been followed, and whether the information provided to the member was clear, fair and not misleading, such that the member could make an informed decision about their options in relation to the ETV offer.
The review's main findings were that:
- there was a large variance in advice approaches and in the quality of advice provided by financial advisers. However, in about one third of the files reviewed, financial advisers appear to have provided ETV pension transfer advice without complying with the requirements and guidance in force at the time; and
- financial advisers frequently failed to meet the FCA's disclosure requirements. The main underlying causes of disclosure failings appeared to be the use of a rigid advice process that did not always allow for consideration of individual member circumstances or information needs, and the absence of clear contemporaneous records.
The report states that the FCA will engage with those financial advisory firms where it has specific concerns about the suitability of their ETV pension transfer advice. It will discuss the file review results with the relevant financial advisory firms and seek to agree a proportionate and tailored set of actions. Where appropriate, the FCA will ask the financial advisory firms to undertake past business reviews and put things right for consumers who have been adversely affected.
The FCA advises that all financial advisers who provide pension transfer advice, including where ETVs are offered, should consider the FCA Handbook requirements, relevant guidance, report findings and examples of good and poor practice provided in the report. They should then review their current arrangements against these. Senior management of authorised financial advisory firms should also satisfy themselves that their firms' practices relating to pension transfer advice deliver fair customer outcomes.
View the report here.
FCA consults on rules for independent governance committees for providers of workplace personal pension schemes
Thirdly, on 6 August 2014, the FCA published a consultation paper on proposed rules that will require the providers of workplace personal pension schemes to set up and maintain independent governance committees (IGCs) (CP14/16).
Workplace personal pension schemes include personal pension schemes and stakeholder pension schemes that employers either use for automatic enrolment or otherwise make available to their employees.
The FCA has been working with the Department for Work and Pensions (DWP) and the TPR to design a package of reform measures to help ensure that all workplace personal pension schemes are high quality and offer value for money.
IGCs will provide governance oversight of defined contribution workplace personal pensions. The key duties of an IGC would involve:
- acting in the interest of relevant policyholders;
- assessing the value for money of the firm's workplace personal pension schemes;
- where the IGC finds problems with value for money, raising concerns (as it sees fit) with the firm's board;
- escalating concerns to the FCA, alerting relevant scheme members and employers, and making its concerns public; and
- producing an annual report of its findings.
The FCA's proposals include allowing firms with smaller and less complex workplace personal pension schemes to establish a governance advisory arrangement (GAA) as an alternative to an IGC.
The FCA intends to amend chapter 19 of the Conduct of Business sourcebook (COBS) to reflect the new rules, and sets out a draft version as an appendix to the consultation paper.
The deadline for responses is 10 October 2014. The FCA intends to publish the rules in a policy statement in January 2015. If the proposed rules are made, they will come into force in April 2015 and firms will be expected to comply from this date.
View the consultation paper.