FCA transfer proposals 'a big step forward' for savers

The regulator's consultation on adapting its requirements for a changing pensions market, published yesterday (11 December), proposes a new process to support non-advised consumers to make informed decisions about whether and where to transfer or consolidate defined contribution (DC) pensions.

People's Pension – a master trust provider that has long called for reforms to improve pension transfer decisions – welcomed the move. It said that placing greater emphasis on clear, objective comparisons between ceding and receiving schemes was essential.

It noted that pension transfer decisions carry "long-term consequences" – pointing towards its recent modelling that showed the scale of potential harm. This analysis found that a 30-year-old average earner moving a £10,000 pot from a provider charging 0.4% to one charging 0.75% could be some £32,834 worse off at retirement.

However, People's Pension expressed its disappointment that the FCA is not recommending banning incentives in pensions – incentives it said made people some 20% more likely to transfer and 20% less likely to read essential information, even when the choice leaves them worse off.

Patrick Heath-Lay is chief executive of People's Partnership, the provider of People's Pension. He said: "This is a big step forward as the FCA has got to the heart of the matter: it's the quality of the decision that matters most when transferring a pension. People need help to accurately compare different pension products: it's confusing, complex and clear communication from pension providers will help.

"Transferring a pension is not like switching a bank account - there are long term consequences from poorly informed decisions."

He added: "The next step should be to consider how these proposals fit with the value for money agenda. From 2028 workplace schemes will be rated on the value they offer but should be extended to all pension providers.

"The FCA should also be thinking ahead to how pension products will be seen and compared on pension dashboards when they launch later this decade. They're right that dashboards will transform the way people engage with pension saving - but the logical next step should be clear value for money ratings on dashboards."

Heath-Lay continued: "While there is much to welcome in these proposals, stopping short of banning incentives is a missed opportunity. Our research shows how quickly incentives can distort decision-making and lead to long-term losses. We look forward to working with the FCA and government to ensure reforms genuinely protect pension savers."

Process must not be cumbersome 

Association of British Insurers assistant director and head of long-term savings policy Rob Yuille said the FCA was right to seek consistency in pension transfers, to achieve good customer outcomes and efficient transfer times - pointing towards how existing industry good practice has improved transfer times, through a straightforward process led by the receiving provider.

But he said that it was also vital for the FCA to ensure the process was not cumbersome for consumers.

He said: "In finalising the rules, it is critical for the FCA to work with industry to ensure the process is not cumbersome for consumers, and for DWP to apply the same measures for occupational pensions. Similarly, balancing uniformity with flexibility is vital to make sure the projections regime makes sense to consumers. These proposals reinforce the need for FCA and DWP both to align, and to adapt to evolving policy, for example on pensions dashboards."