DC pension flexibilities: DB to DC transfers – draft Regulator guidance

The Pensions Regulator has published draft guidance for trustees on DB to DC transfers.

23rd February 2015

The new DC pension flexibilities announced as part of last year’s Budget are due to come into force from 6 April 2015. In preparation for the new flexibilities, the Pensions Regulator has published draft guidance for consultation on DB to DC transfers and conversions.

Background

Following the announcement of the new DC pension flexibilities, concerns were raised that this may lead to an increase in transfer or conversion requests from members in DB schemes. This could mean that DB members may transfer or convert without due consideration or that DB schemes may become unsustainable. While the Government has decided not to ban or restrict transfers or conversions, it has proposed two additional safeguards. Those safeguards are that:

  • individuals who wish to transfer or convert their DB benefits to DC will be required to obtain "appropriate independent advice" from an FCA-authorised adviser; and
  • the Regulator will publish guidance for trustees to remind them of their powers to maintain the sustainability of their schemes.

The draft guidance published by the Regulator deals with the requirement for members to obtain advice.

Advice requirement

Where DB benefits over £30,000 are being transferred or converted, the trustees must obtain from the member a signed confirmation from their FCA-authorised adviser, which includes certain prescribed statements. The transfer or conversion cannot be made until the trustees have checked the adviser's details on the Financial Services Register and confirmed that he/she is authorised. The signed confirmation and a record of any checks should both be retained by the trustees.

The draft guidance indicates that trustees will only be expected to confirm that advice was received by the member and that this was from a legitimate source (ie. FCA-authorised). Based on the draft guidance, trustees will not be required to investigate the nature of the advice or whether the advice was followed.

Transfer request process

The draft guidance also sets out new requirements for dealing with transfer requests which reflect the new requirement for advice. The new guidance states that:

within one month of receiving a member's request for a transfer value, trustees must notify the member that he is required to take independent advice on the merits of the transfer;

when providing the statement of entitlement, trustees must provide a notice to the member informing him of the requirement to provide the necessary evidence that he has received independent advice from an FCA-authorised adviser; and

the statutory requirement to transfer within six months of the guarantee date only applies where the trustees have been able to check that the member has obtained independent advice about the transfer.

 

Comment

Consultation on the draft guidance closes on 17 March and the finalised guidance will be published as soon as possible thereafter. Given the timescales involved, it may be that trustees will be required to respond to some transfer requests in accordance with the new advice requirement prior to the corresponding guidance being finalised. Trustees should take steps now to ensure that their transfer arrangements can incorporate the new advice requirement and deal with any increase in transfer requests within the necessary timeframe

For final guidance, see article Pension flexibilities - DB to DC transfer guidance finalised