FSA proposes changes to pension transfer analysis

The Financial Services Authority is consulting on proposals to change pension transfer analysis after criticising certain advisers for taking a “mechanistic” approach. This involves a review of the current method, transfer value analysis (TVA). TVA calculates the benefits of a transfer that will be given up when clients transfer from a defined benefit scheme to a personal pension. The FSA aims to ensure assumptions advisers use for comparisons are applied consistently by all firms and use reasonable growth rates to illustrate the results of the comparison to the client. The FSA is proposing: To update the rules for calculating mortality to be aligned with those used by the Board for Actuarial Standards, and therefore making them consistent with annual pension statements that all personal pension holders receive once a year; To calculate annuities on a gender-equal mortality rate, in line with the European Court of Justice’s decision in March 2011; To introduce a Consumer Price Index (CPI) assumption for re-valuing pensions in deferment, reflecting legislative changes made by the government in 2011; To require CPI-linked benefits to be valued using the Retail Price Index (RPI)-linked annuity interest rate; That Limited Price Indexation (LPI) annuities will be valued on the same assumptions as RPI-linked annuities; and That the comparison provided to the member is illustrated on growth rates that take into account the likely returns of the pension fund assets as well as the transfer of risk from the DB scheme to the member. The changes mean transfer values will have to increase before an adviser recommends a transfer. Sheila Nicoll, FSA director of conduct policy, said: “As things stand, there is a high risk members receive unsuitable advice as a result of the mechanistic approach to analysing transfer values taken by some advisers. “These changes are important to make sure members’ interests are at the centre of any decision to transfer and that any advice to transfer is suitable.” The consultation period is open until 27 March. • Want to receive a free weekly summary of the best news stories from our website? Just go to home page and submit your name and email address. If you are already logged in you will need to log out to see the e-newsletter sign up. You can then log in again.

FSA proposes changes to pension transfer analysis

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