Transfer Process, Requirements and Timescales

Question 1

What is the process for requesting and accepting a transfer value and the timescales involved?

Answer 1

• The member applies to the scheme for a statement of entitlement;
• The trustees must advise them within one month of the need to seek financial advice;
• The trustees must provide a guarantee date;
• Which must be within three months of receipt of the request;
• The trustees must advise the member of the guarantee date within ten days of it being set;
• And confirm the deadline to seek advice (where necessary);
• The member must then apply for the transfer in writing within three months of the guarantee date;
• The member must then provide proof of advice being taken within three months and ten days of the guarantee date;
• The trustees must then make the transfer within six months of the guarantee date;
• Assuming that all relevant information has been received

Question 2

Prior to the transfer taking place, state the information which is required to be confirmed to the trustees by the client’s adviser.

Answer 2

The adviser must confirm:

• That the adviser has provided financial advice to the individual on the proposed transaction;
• That they have the appropriate permissions to carry out the transaction;
• The FCA registration number of the adviser authorised to carry out the transaction;
• The individual’s name and the name of the scheme in which they have the safeguarded benefits

Question 3

State the key points relevant to the FCA’s definition of a pension transfer.

Answer 3

A transaction resulting from the decision of a retail client who is an individual;

To transfer deferred benefits from;

• an occupational pension scheme;
• an individual pension contract providing fixed or guaranteed benefits that replace similar benefits under a defined benefits pension scheme; or
• (in the cancellation rules COBS 15 only) a stakeholder pension scheme or personal pension scheme;
• TO
• a stakeholder pension scheme; personal pension scheme: or deferred annuity policy (s32 buyout) where the eventual benefits depend on investment performance in the period up to the intended retirement date

Question 4

State the accreditations and authorisations that a firm and individual must have in order to advise on defined benefit transfer:

Answer 4

• The firm must have FCA authorisation to carry out the regulated activity of advising on the conversion or transfer of pension benefits;
• The individual must be registered as a CF30;
• Must hold an appropriate examination (AF7, G60, AF3, PTPA, PETR);
• And must have appropriate CPD completion on record

With effect from OCtober 2020, the PTS will also be required to hold a full RDR level 4 investment advice qualification. No grandfathering available.

Question 5

Outline the FCA’s expectations of a pension transfer specialist when checking a case as set out in PS18/6.

Answer 5

The PTS should:

• assess the reasonableness of the personal recommendation reached by the adviser;
• assess the compliance and reasonableness of the adviser’s comparison;
• inform the adviser in writing of any disagreement with the advice process

Question 6

In which (6) permitted cases are trustees eligble to apply for an extension on the 6 month statutory timescale of paying a CETV?

Answer 6

• The scheme is being wound up or is about to be wound up;
• The scheme is ceasing to be a contracted out scheme;
• The interests of the members of the scheme generally will be prejudiced if the trustees do what is needed to carry out what is required within that period;
• The member has not taken all such steps as the trustees can reasonably expect in order to satisfy them of any matter which falls to be established before they can properly carry out what the member requires;
• The trustees have not been provided with such information as they reasonably require properly to carry out what the member requires;
• The member’s cash equivalent has been reduced or increased under regulation 9 of SI 1996/1847 or the member has disputed the amount of the cash equivalent.

Question 7

Cold calling is banned in relation to pensions, except where:

Answer 7

• the caller is authorised by the FCA, or is the trustee or manager of an occupational or personal pension scheme, and
• the recipient of the call consents to calls, or has an existing relationship with the caller

Question 8

All firms carrying out regulated business are subject to the FCA’s record keeping requirements. Records are required to be kept indefinitely where they related to:

Answer 8

• A pension transfer;
• A pension conversion;
• A defined benefit opt-out;
• An FSAVC

Question 9

Documentation which should be retained should include:

Answer 9

• The full client fact find/ needs review;
• Any supplementary questionnaire relating to pension arrangements;
• The Transfer Value Comparator calculation;
• Suitability report including Appropriate Pension Transfer Analysis;
• Evidence of receiving scheme research and justification;
• Client agreement/ disclosure documentation;
• Statement of entitlement;
• Ceding scheme provider information;
• Evidence of Pension Transfer Specialist sign-off;
• Minutes of any case panel/risk committee discussion and notes confirming agreed outcome and process

Question 10

What rules apply to the advising on the transfer of GAR as a safeguarded benefit, where the value of the benefits exceed £30,000?

Answer 10

• The firm must have permission to advise on the conversion or transfer of pension benefits;
• However, the work is not required to be signed off by a pension transfer specialist;
• Likewise, the firm is not required to produce an APTA;
• However, the FCA expects that as a part of the advice process, the adviser should prominently highlight the value of the guaranteed annuity rate.

Question 11

What three steps must be taken when advising an insistent client?

Answer 11

• You must provide advice that is suitable for the individual client and this advice must be clear to the client. Advice on pension transfers should follow the normal advice process for pension transfers.
• You should be clear with the client what the risks of the alternative course of action are.
• You should be clear with the client that their actions are against your advice

Question 12

The information which the firm should communicate to the insistent client is:

Answer 12

• that the firm has not recommended the transaction and that it will not be in accordance with the firm’s personal recommendation;
• the reasons why the transaction will not be in accordance with the firm’s personal recommendation;
• the risks of the transaction proposed by the insistent client; and
• the reasons why the firm did not recommend that transaction to the client

Question 13

The firm should obtain from the insistent client an acknowledgement that:

Answer 13

• the transaction is not in accordance with the firm’s personal recommendation; and
• the transaction is being carried out at the request of the client.

Where possible, the acknowledgment should be in the client’s own words.

Question 14

What are the six steps involved in the ISO 222222 international standard for financial planning?

Answer 14

1. Establishing and defining the client and personal financial planner relationship.
   
   1. This is the client/fee agreement disclosure
2. Gathering client data and determining goals and expectations.
   
   1. Fact-finding
3. Analysing and evaluating the client’s financial status, including attitude to risk.
   
   1. Analysis and critical application of suitable advice
4. Developing and presenting the suitability report.
   
   1. Presentation
5. Implementing the financial planning recommendations.
   
   1. Putting the advice into action
6. Monitoring the financial plan and the financial planning relationship.
   
   1. Ongoing reviews and advice

Question 15

What changes did policy statement 18/6 apply to the advice process?

Answer 15

• All advice on the transfer and conversion of safeguarded benefits should include a personal recommendation
• Rather than look at just the numerical analysis, a PTS should:
  
  • assess the reasonableness of the personal recommendation reached by the adviser
  • assess the compliance and reasonableness of the adviser’s comparison
  • inform the adviser in writing of any disagreement with the advice process

Question 16

From 1 October 2018, advice must include a transfer value comparator (TVC). What does this show in graphical form?

Answer 16

• the cash equivalent transfer value (CETV) offered by the DB scheme
• the estimated value needed to replace the client’s DB income in a defined contribution environment, assuming investment returns that are consistent with each client’s attitude to investment risk and that they purchase an annuity

Question 17

Following on from PS18/6, and a further CP 18/7, policy statement 18/20 was published in October 2018. This mandated that attitude to transfer risk is highlighted as a separate assessment to ATR. ATTR takes into account (6 points):

Answer 17

• the risks and benefits of staying in the safeguarded benefit scheme
• the risks and benefits of transferring to a flexible benefits scheme
• the client’s attitude to certainty of income throughout retirement
• whether the client is likely to access funds in flexible benefits in an unplanned way, and the impact of that on the sustainability of the funds over time
• the client’s attitude to any restrictions on their ability to access funds in a safeguarded benefits scheme
• the client’s attitude to and experience of managing investments themselves or paying for them to be managed in a flexible benefit scheme

Question 18

What is the purpose of a triage process and what should it do for clients?

Answer 18

• The purpose of a well-functioning triage service is to identify at an early stage customers for whom a transfer is very unlikely to be in the best interests.
• The customer can then identify this without being required to pay a substantial sum for full advice
• Triage should be educational and provide generic, balanced information on the advantages and disadvantages of a pension transfer.

• If an adviser makes a reference about how a client’s personal circumstances may influence advice to transfer, then it is likely that they are providing advice.*
• A well functioning triage service should involve the client being armed with the facts and filtering themselves out where necessary as opposed to being sheperded either way by an adviser.*
• The perimeter guidance on triage came into force on 1 January 2019.*

Question 19

What level of compensation can be awarded by the Financial Ombudsman Service with regard to pension switches and transfers?

Answer 19

As of 1 April 2019, the monetary limit to compensation which can be awarded by the FOS, has increased from £150,000 to £350,000.

The compensation figure can be broadly linked back to any disparity in pension transfer value to the FCA estimation through the TVC.

Question 20

To prepare an appropriate transfer analysis a firm must:

Answer 20

1. Assess the benefits likely to be paid and options available under the ceding arrangement;
2. compare (1) with those benefits and options available under the proposed arrangement; and
3. undertake the analysis (1) in (2) in accordance with COBS 19 Annex 4A and COBS 19 Annex 4C

In January 2017, the FCA issued a note to all firms to take into account the assets in which the client’s funds will be invested as well as the specific receiving scheme.

Question 21

When carrying out an APTA for overseas transfers, firms must take into account factors not necassarily relevant to a UK pension transfer. Firms must pay particular attention to:

Answer 21

• Levels of returns and local inflation rates, relative to fluctuations in exchange rates
• levels of charges on overseas arrangements
• different tax considerations (including possible charge on a QROPS
• different legislative frameworks
• local levels of protection i.e. the FSCS equivalent