48: Guidance for trustees and employers on providing pension information without breaching FCA rules

New guidance recently published jointly by the Financial Conduct Authority (FCA) and The Pensions Regulator seeks to provide further clarification for employers and trustees on how to provide support on pension scheme decisions without straying into territory that would require them to have FCA authorisation. This blog gives an overview of the new guidance.

Background

Many employers and trustees want to help pension scheme members by providing advice on their retirement and transfer options, particularly given the complex range of choices and freedoms, and the heightened risk of scams.

Although this will not normally require authorisation from the FCA, the regulatory boundaries can be unclear and difficult to apply in practice. This has especially been the case in respect of the ability of trustees to provide transfer values as part of pre-retirement communications and/or to offer retirement modelling.

Main points from the guidance

The main points to note from the guidance include:

Unsolicited transfer values

• Schemes can provide transfer value quotes, to members who have not requested one. However trustees are encouraged to first consider whether the provision of the transfer value is likely to result in a good outcome for the members. A large transfer value compared to the amount of scheme pension can be misleading.
• Trustees can give balanced and factual context to help members understand the relationship between the transfer value and scheme benefits but should avoid giving information that suggests whether or not a member should transfer / convert their DB benefits to DC benefits or that implies a certain course of action is correct.

Retirement modelling

• Factual numerical information about scheme benefits and options can be given to members. Equally, a comparison of open market annuities can be provided but the guidance draws the line at information about pension drawdown as this is not factual and depends on assumptions about the future, rather than facts.
• Extra care is needed when numerical information is given about retirement options that include transfer values. Members must not be given illustrative figures that compare the outcomes they might get if they keep a DB benefit or transfer it to a DC arrangement, since this could be seen as advising a specific course of action (and giving such advice requires FCA authorisation). which would need FCA authorisation. The guide suggests that context could be provided instead by giving information on average life expectancies, typical payment periods and the effect of pensions increases.
• Answering questions that involve a specific understanding of a member’s individual financial position, including their objectives and priorities, is likely to constitute regulated advice. Similarly, directing members towards a particular product or provider could also be a regulated activity.

Independent financial advice

• Members can be signposted to annuity comparison or drawdown tools on the government’s Money Advice Service or Pension Wise websites but not to similar tools on FCA-regulated firms’ websites as this could require FCA authorisation.
• Employers and trustees can facilitate IFA advice subject to certain safeguards, for example, by using IFAs who offer a full range of products rather than restricted advisers. The guidance recognises that schemes may be in a better position to identify a suitable IFA and to negotiate good terms. However, this section must also be considered in light of a strongly-worded statement from the Pensions Ombudsman reminding employers and trustees of their wider responsibilities towards members and employees. These include a duty to carry out appropriate due diligence on IFAs, to monitor any IFA list on an ongoing basis, and to ensure all IFAs meet carefully considered criteria.

What does this mean for employers and trustees

This new guidance has resolved much of the previous uncertainty about the provision of unsolicited transfer values and, to some extent the use of retirement modellers, and will provide some reassurance for trustees and employers looking to help members assess their pensions options.

However, it is also a reminder that this is a complex area, and financial information about benefits and investment outcomes must be very carefully communicated.

In order to avoid straying into areas requiring FCA authorisation, early specialist advice should be sought on all retirement communications, particularly as regards the details of retirement modelling and DB to DC transfers.