The changes outlined today in a policy statement are designed to deal with the regulator’s concern that, generally, a pension transfer is not in the best interest of pension scheme members.
To do this, it is raising the standards on the assumptions used when a pension transfer value analysis is made. This aims to make it harder for an adviser to recommend a transfer from a DB scheme to a personal pension.
Sheila Nicoll, director of conduct policy at the FSA, said: ‘In the vast majority of cases someone in a defined benefit pension scheme will not be better off transferring to a personal pension.
‘The new assumptions will make it tougher for advisers to make the case for a transfer. As a result of these new rules, we would expect the number of pension transfers to decrease, leaving pension scheme members better off.’
Four key changes are being made to ensure a fairer analysis of a pension transfer, following an earlier consultation on the issue. These include valuing consumer price index-linked benefits using a CPI-linked annuity rate, instead of a retail price index-linked annuity rate.
Explicit limited price index-linked annuity rates are being introduced to value limited RPI pension increases. These rules clarify the approach advisers should take when calculating pension increases, the FSA said.
To give advisers the most up-to-date rate to use in their assessments, a new 12 month rolling annuity interest rate will be introduced between the annual standard reviews of the AIR, and new guidance has been introduced which requires advisers to clearly communicate the transfer risk to the member.