The planned changes around DB – what you need to know

Following the PS20/6 from the FCA, they have stated that when it comes to Defined Benefit (DB) transfers there are “too many instances where transfers were not in consumers’ best interests”.

The focus of the review therefore, is to empower consumers and ensure that consumers understand the advice given.

It is important then from a paraplanners perspective to understand and include the changes when working on a DB case. There are parts that must be included in the suitability report and some which are required to be retained on file. Strap in as this is quite technical, but is very important in the DB advice process. I will summarise the changes for you.    

Changes to be aware of

First of all there will be changes to the Triage process.

The aim of triage is to give a prospective client sufficient information about safeguarded and flexible benefits, to help them decide whether or not to take advice on the transfer or conversion of their pension. The new rules state:

  • Decision trees or Red, Amber and Green (RAG) status indicators in Triage are not allowed.
  • Any consideration of a customer’s circumstances which steers them one way or the other is likely to be advice.
  • Some firms did not have controls or records relating to their triage service. Therefore it is important these records are kept on file.
  • Third party services.

The FCA have now added another layer to help a client in the process called Abridged Service.

From 1 October 2020, firms advising on pension transfers will have the option of providing Abridged Service.

Simply with this process, there are only two outcomes…

A personal recommendation to the client not to transfer or convert their pension, or to inform the client that it is unclear whether or not they would benefit from a transfer or conversion based on the information collected.

Main rules:
  • You must consider the risks of staying in the scheme and the risks of transferring and losing the benefits.
  • The advice must not consider how funds might be invested if a transfer proceeded.
  • Abridged advice and full advice must be carried out, or checked, by a qualified PTS and constitutes a personal recommendation.
  • You should not charge the client for the same work twice.
  • Conduct a full fact-find.
  • An assessment of attitude to transfer risk, capacity for loss, attitude to investment risk and relevant knowledge and experience of investments.
  • You must not undertake APTA or provide a TVC.
  • You can collect further information on the benefits of the client’s existing scheme without compromising the role of abridged advice.

Please see below a diagram of the overall process if the client is offered a Triage service and Abridged service.

Contingent charging

The Contingent Charging Ban – what does it mean?

Advisers must charge the same monetary amount for advice to transfer as not to transfer. This could be a shock to the system for many advisers.

What are the new rules?

  • Conduct a full fact-find.
  • There can be no additional ‘implementation’ fees.
  • No difference in ongoing charges to make up for lost initial fees.
  • Initial fees may vary depending on the number of schemes. They should be set out in a clear and easy to follow pre-determined criteria and process.


  • Whilst there may be no product linked to the advice provided (in the event of the advice being not to transfer), HMRC have advised that VAT will still not apply.
  • An unauthorised payment charge will apply if the fees are taken from another pension arrangement.

Exceptions to the rule or ”Carve Outs”

Serious Ill Health – This is where life expectancy does not go beyond age 75. Advisers do not need to seek medical opinion – but it is expected that advisers will have seen self-evidence from the client as to their treatment plans or supporting information.

Serious Financial Difficulty – This is when the client finds keeping up with bills and repayments a heavy burden. This will be if three or more monthly bill or loan repayments have been missed in the last 6 months. Evidence is required of the above and the status is negated if the client has savings or investments or is able to meet ’non-essential’ expenditure.

Other carve outs:

Pipeline cases

Pension sharing orders

Transfers outside of the UK

Please note, all ”Carve out” clients should be treated as vulnerable. Appropriate consideration must be considered and documented as to the process followed (firms vulnerable client process/policy). What other help should be given? Such as debt counselling etc.

Workplace pensions vs alternatives

Another big change, is also that advisers and paraplanners now need to consider a client current workplace pension in more detail.

It is not enough to just consider it; if the recommendation is to go to any other pension, then you must clearly demonstrate why that is more suitable than the clients existing workplace scheme.

This will add more to your suitability reports, but it is important that WPS are covered in more detail than a simple sentence or two.

What are the FCA expecting to see?

  • You only need to compare against one of the client’s workplace pension scheme’s (WPS), not all of the previous WPS they may have been a member of to reduce the admin time spent gathering ceding scheme information.
  • They would expect to see a comparison against the clients most recently joined WPS.
  • However, if you consider a previous WPS to be a more appropriate comparison it is OK to do so, for example if the most recent WPS does not accept additional contributions or if the client is not an active member of the scheme at the time of comparison.
  • If ongoing advice is needed and would add value for the consumer, this should be considered as part of the recommendation, including the option of paying ongoing adviser charges directly, rather than through the scheme.
  • A standard paragraph to dismiss a WPS in the suitability report will not satisfy the new rules.
  • Firms should be looking to change their process to be able to undertake the required analysis as part of the APTA process also.

Auto enrolment has been with us for some time now and it is highly likely that clients could already be enrolled in a low-cost qualifying workplace pension scheme that meets the requirements of automatic enrolment, in addition to any personal pensions they may also have.

Key Considerations when looking at existing schemes:

  • Internal fund research
  • Level of employer contributions
  • Overall charging structure
  • Does the workplace provider/scheme facilitate adviser charging?
  • Reduction in yield comparison
  • Are there multiple tax wrappers available within the workplace scheme?

Disclosure Rules:

Before a firm provides any regulated advice it is important that it is personalised and distinguishable from letters sent to other customers.

This letter must be provided in ‘writing’ which also extends to non-paper methods. Details the amount the customer would pay in £s for.

Applies to:

  •  Abridged advice
  •  Full advice
  •  Ongoing advice.

You must get evidence that the client can demonstrate they understand the risks to them of proceeding with a pension transfer or conversion before finalising the recommendation, and keep a record of this evidence. Signatures alone will not always confirm understanding.

Changes being made to TVC:

  • Assume that a female member of the scheme has a male spouse or partner who is 3 years older; or a male scheme member has a female spouse or partner who is 3 years younger.
  • Reduce the pre-retirement expense assumption used in the TVC, from 0.75% to 0.4% to reflect the lower costs of investing solely in gilts.
  • Base the rate of return during accumulation on the 5 – to 10-year UK FTSE Actuaries Index or the 10- to 15-year index, and can disregard the 5- to 15-year index.
  • It is anticipated that software providers will make changes in the coming 4 months.

Please note that the system that you use for TVCs are likely to update their default settings to run them on this basis. So you may not need to worry too much about these.  

There is also an additional reporting requirement

RMAR regulatory return (RMA-M)

  • Covering data on DB and other safeguarded benefit advice.
    • Monitor the number of carve-out clients that are given a recommendation to transfer or convert their pension.
    • First submission is required by the end of April 2021.

Finally just an important note, is that Pension Transfer Specialists (PTS) are required to undertake 15 hours of CPD focused on the activities of a pension transfer specialist.

The additional CPD is broken down as follows.

  • 5 hours to be provided by an external provider.
  • 9 need to be structured learning.
  • 6 hours may be unstructured.
  • Checking and delivering advice can be included.
  • This can be aligned with the PTS’s normal CPD year and SPS,
  • Additional prescribed CPD will be compulsory from 1st October 2020.

I hope this give you a useful insight to the DB changes that are coming soon and can help prepare you and your firm whether you are a paraplanner or adviser. 

I would suggest as best practice you look to implement these changes sooner rather than later as bets practice.

I hope this has helped and provided a clear understanding of the changes and implementing these (whilst not being too boring!).

Peter Rhoden – Lead Paraplanner

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