Demystifying FCA advice for final salary pensions

Every final salary pension transfer over £30,000 needs FCA advice

Back in 2016 the Financial Conduct Authority (FCA) made it complusory for anyone wishing to transfer a final salary pension scheme where the transfer value was over £30,000 to obtain FCA advice. Over time the FCA have become more and more prescriptive about the form of this advice. The reason is the FCA believe people should not transfer out of final salary scheme because they won’t be able to get as good benefits in the open pension market. This may well be true for someone living in the UK, but if you live overseas there are a raft of other factors that need consideration, such as the different tax regimes, exchanges rates and the practical management of the funds.
 
 

No relief just because you don’t live in the UK

The FCA don’t differentiate on their rules and everyone that wishes to transfer a final salary pension must get FCA advice. As we have already stated the format of the advice is very prescriptive and is extensive. So, if you wish to transfer your final salary UK pension to New Zealand you are going to need to fill in a lot of forms in respect of this advice, why you ask. Well, the UK financial adviser must satisfy the condition that every option is looked at that could substitute the effect of a pension transfer. For example, if you believe your life expectancy will not be great based on family history, then the FCA adviser would look at how life insurance might be a better solution (as opposed to a pension transfer). Essentially, it boils down to this, in order to get an FCA advice report that says ‘yes’ a transfer is in your best interests you essentially need to prove that you don’t need the money.
 
 

The majority of recommendations will be “don’t transfer”

There are a series of financial models that the FCA adviser will run to determine whether a transfer is a good idea. These models don’t take into account differing tax regimes, and have extremely punitive variables set into them by the FCA (like the fact that you would lock in a 1% return a year in the UK depsite inflation running at 2.8%). So the outputs of the financial model will invariably return a “do not transfer” result because they are not considering the “real world” returns.
 
This can be overcome where the FCA adviser can assess your individual financial circumstances, like whether you even need the income from the UK pension (if ithat need isn’t great then they can recommend a transfer). However, the FCA is quite clear that tax cannot be the determining factor. Why? Because they believe that, for example, someone could potentially decide to move back to the UK. So again, the FCA are being selective in respect of what can and cannot be used.
 
 

A “don’t transfer” recommendation doesn’t mean that you can’t transfer

If you get a “don’t transfer” recommendation it doesn’t mean you can’t transfer your UK pension. UK schemes must ensure that you have received FCA advice, they can’t halt a transfer on the basis that the advice recommended that you do not transfer. Where you want to transfer against the advice of the FCA adviser, you are known as an “insistent client”. If you follow this path the best practice guidelines state that you should write a letter to your FCA adviser outlining the reasons in your own words why you are still transferring.
 
 
The transfer of a final salary pension is extremely complex and there are many variables that need to be assessed from a regulatory, tax and individual perspective.
 
We strongly recommend that you speak with a professional before undertaking any pension transfer. Our team of pension transfer specialists are on hand to answer any questions so contact us now for a confidemtial and no obligation discussion about your UK final salary pension.