8 things you need to know about PS20/6

Around this time last year, I was in the process of digesting the contents of FCA consultation paper CP19/25. This was the third in a series of consultation papers aimed at  improving the quality of pension transfer advice, and the most prescriptive and decisive to date. The regulator even acknowledged that, “the proposals in this CP are likely to reduce the number of advisory firms active in the market, as well as access to advice, at least in the short-term”. I remember thinking at the time that this CP could be a game changer!

The long awaited response to CP19/25 arrived in June, in the form of policy statement PS20/6. As industry experts predicted, it contained no big surprises, with only minor amendments to the original proposals. A bit more unexpected was the issue of FCA guidance consultation GC20/1 on the same day. This paper was issued in response to industry calls for increased guidance in this area and contains examples of good and bad practice and invites feedback from the industry. Together with PS20/6, GC20/1 is a ‘must read’ for those involved in providing pension transfer advice.

So what are the changes and when will they happen?

The proposals are quite detailed and lengthy, so the points below are merely a high level summary, and I would expect Pension Transfer Specialists to be familiar with the finer detail. Similarly those who are studying towards AF7, PETR or an equivalent qualification should take the time to absorb the details, as pension transfer advice has evolved markedly in a short period of time and students are likely to encounter exam questions that test their knowledge of the latest guidance.

  • Ban on contingent charging

This is one you will definitely be aware of as there has been much discussion and polarisation over this proposal. Bar limited circumstances, advisers must charge (and collect) the same fee for pension transfer/conversion advice, regardless of whether the recommendation is to transfer or not. This single charge for advice must cover all related and associated charges including investment advice, and the FCA have laid out a number of rules to prevent “gaming” of the ban. The ban will be introduced on 1st October 2020 for new clients, with a short transitional period for clients who agreed to contingent charging before this date.

  • Carve out

Although the ban on contingent charging is designed to protect consumers, there are concerns that it could restrict access to advice for some ‘vulnerable’ groups where transfer may be considered suitable, but who are unable to pay for advice on a non-contingent basis. To mitigate the impact on access to advice, those clients who are considered to be in ‘serious ill health’ or in ‘serious financial difficulty’ are carved out and can continue to pay for advice on a contingent basis. The FCA have set out evidential provisions and guidance in the Handbook, with examples of where they think the test will or will not be satisfied. GC20/1 also contains examples of where carve out may apply.

  • Triage Services

PS20/6 sets out that “triage should be an educational process so that consumers can decide whether to proceed to regulated advice”. If advisers give a professional opinion, based on considering the client’s circumstances that steers the client towards keeping or giving up their safeguarded pension benefits, they are likely to be giving advice. To minimise the risk of advisers crossing this ‘advice boundary’, firms should not use decision trees and traffic-light RAG-rated questionnaires within a non advised triage service with immediate effect.

  • Abridged advice

The FCA have introduced a new shortened form of pension transfer advice. Abridged Advice is a means of filtering out unsuitable transfers and only has 2 possible outcomes; ‘recommendation not to transfer’ or ‘it’s unclear from the information available in the abridged advice process, whether the client would benefit from a transfer’. Abridged Advice does not include APTA, thus it enables consumers to access low cost pension transfer advice, where transfer may be unsuitable. Should the outcome be unclear, the client can choose to proceed to full advice. Remember though, that a transfer can only be recommended after receiving full advice. Abridged Advice will be introduced on 1st October 2020, but there is no obligation for advisers to provide this service. 

  • Prioritising DC Workplace Pensions schemes

Previously, advisers were merely required “to demonstrate that any alternative pension plan the client is transferred to is at least as suitable as the workplace pension”. From 1st October 2020, advisers will be required to demonstrate that any alternative is ‘more suitable’ than an available workplace pension. This substantially higher test is intended to protect consumers from being transferred into products that are unnecessarily complex or have high charges (including ongoing adviser charges) and there are limited circumstances where a WPS does not need to be considered. All firms will need to change their processes to undertake the required analysis in the APTA and recommend a WPS where it is as suitable. Again this measure will be introduced on 1st October 2020, with limited transition for clients in the pipeline.

  • Empowering consumers

FCA file reviews have highlighted poor levels of disclosure, particularly in relation to the way initial and ongoing fees are communicated. Before engaging in advice, firms must now send clients  a letter of engagement that sets out in monetary terms the amounts that would be paid under various conditions. 

Additionally, all transfer suitability reports requiring a PTS will now require a “one page summary” at the front. This is limited to an A4 if printed size and must contain a charges disclosure, summary of recommendation, pension risk and details of any ongoing advice. The client is invited to sign each section in acknowledgement. Whilst the layout is not prescribed, the FCA have set out examples of an appro