Deadline on Free Defined Benefit Pension advice announced
When is the Free Advice for Defined Benefit Pension Deadline
Amidst continued uncertainty regarding the Covid-19 pandemic many may not be aware that the Financial Conduct Authority have announced changes to the regulations surrounding Defined Benefit pension (also known as Final Salary) transfers this month.
Nonetheless these changes will affect how pension holders will need to pay for mandatory advice required to explore their options and choose their best way forward in retirement.
How will these changes affect Defined Benefit pension holders?
The aim of the new regulations is ‘to improve the quality of future advice on DB transfers, reduce the incidence of bad advice, and so reduce the harm to consumers losing their guaranteed lifetime pension income and paying high fees when doing so.’ FCA PS20/6.
On the whole many of the amendments are likely to lead to a safer environment and better quality advice for many clients, for example all pension transfer advisers will be required to compare defined benefit pensions to alternative potentially cheaper workplace pension schemes and show risks and charges in a clearer manner. (Please see https://www.fca.org.uk/publication/policy/ps20-06.pdf?LinkSource=PassleApp for details of all new regulations).
However there is one important change which may mean pension holders are required to pay more for mandatory advice regarding their pension.
Ban on Contingent charging
The new guidelines will mean a ban on contingent charging for advice on pension transfers and conversions. In most circumstances, clients will now have to pay for advice, whether or not that advice is to proceed with a transfer.
As advisors would be required to charge the same fee for advice on your Defined Benefit pension regardless of whether the transfer goes ahead or not.
Julie has been working for her employer for 30 years and has a decision to make regarding her Defined Benefit pension:
She can either take the defined benefit pension as is which would give her a fixed payment of £7,900 pa
Transfer her pension valued at £200,000 into a personal pension
Julie would like to explore the option of transferring her Defined Benefit pension to a personal pension as she would like her husband and children to inherit all of her pension if anything were to happen to her, which would not be an option if she simply took her defined benefit pension as is. She would also like to control how and when she receives her income to save tax and allow for tax free lump sum withdrawals as and when desired for her dream holidays.
Under the current rules we would conduct a full analysis of her retirement plans, other provisions risk tolerance and goals – free of charge – and present these to Julie. She would only be charged if she were confident that a transfer was in the best interest of her and her family. The fee would be taken from her pension upon transfer.
However under the new rules we would be required by the FCA to charge Julie the same fee for our analysis and advice even in the event of her deciding to do nothing, if for example it was in her best interests to take the fixed income as is.
What to do if I have a Defined Benefit pension and I’m unsure about my options?
As the new rules don’t come into effect until 1st of October 2020 you still have time to explore your options and obtain free advice if you contact us soon.
As we are passionate about everyone having access to quality pension advice we will still be offering free initial pension advice up until the deadline so get in touch either by clicking the button below or by calling us now on 0161 437 5999