The Pensions Regulator has now published its final guidance for trustees on DB to DC transfers and conversions. The draft guidance was issued for consultation on 12 February (click here for our bulletin) and some minor changes have been made in the final draft. Some of those changes relate to inconsistencies with the underlying legislation, which was not yet finalised at the time of the draft guidance, while other changes are intended to provide more guidance in response to consultation feedback.
The key changes which have been made to the draft guidance are summarised below.
- Information requests from advisers are now dealt with in the guidance. The Regulator confirms that it would expect this to include the information which is ordinarily available to members, such as the scheme booklet and benefit statements, and that it is appropriate for schemes to make this information available to advisers. The consultation raised the question of whether employer covenant information should also be provided to the advisers. The Regulator has opted against this in light of the sensitivity of such information and the potential impact on employer-trustees relations.
- The trustee’s role remains not to “second-guess” any decision taken by the member. The final guidance does, however, add that the advice provided to the member is likely to be confidential and trustees should therefore not request a copy of the advice or seek to establish the content of the advice in any way.
- Non-statutory transfers have also been included in the final guidance. This arises where scheme rules might permit a transfer or partial transfer in circumstances which would not provide the member with a statutory right to transfer. The Regulator will expect such a transfer to be carried out in a manner consistent with a statutory transfer request (eg. informing the member of the need for advice). It is also confirmed that the requirement to obtain independent financial advice for a DB to DC transfer will apply to transfers under the scheme rules as well as statutory transfers.
- It is confirmed that DB to DC conversions within a scheme will be subject to the same requirement to obtain independent financial advice.
- The requirement for trustees to verify that the appropriate advice has been obtained remains and further information is provided as to how trustees may seek to verify that the adviser is authorised by the FCA. Trustees should ensure effective record-keeping of the verification process and should be alert to the possibility of fraudulent confirmations.
- Employer-instigated transfers will require the employer to pay the cost of the advice and further guidance is provided as to when a transfer will be deemed employer-instigated.
Comment
The majority of the changes are intended to clarify rather than amend any of the substance of the draft guidance. This will be a relief for those schemes which have already made arrangements on the basis of the draft guidance. All schemes with DB benefits should now seek to agree and finalise their approach to transfer requests in light of the guidance.