10
Financial Conduct Authority
Guide for employers and trustees on providing support with nancial matters without needing to be subject to FCA regulation
You might try to give some context for the transfer value to help members understand
the relationship between the transfer value and the scheme benefits. But you need
to take care that you do not steer a member towards a transfer/conversion when
you provide context for the transfer value. If you do, you would be undertaking a
regulated activity. You might do this, for example, if you show illustrative values based
on the income the transfer value could generate outside the DB scheme as this
might influence a member towards a transfer/conversion. A value is illustrative if it
uses assumptions about the future. For example, if the value is based on assumed
investment returns or inflation.
So you should consider other ways you could provide some context that enables
members to appreciate the relationship between the transfer value and the
increasing DB scheme income they would give up. For example, as consumers often
underestimate their life expectancy, many members may not appreciate how long the
DB scheme benefits, including inflation-linked increases, would typically be paid, first
to themselves and potentially then to a partner after their death. So you could provide
information on average life expectancies, typical payment periods and the impact of
pension increases to encourage members to think about the relationship between the
DB income stream and the transfer value.
You will not be steering members towards a transfer or conversion if you signpost
them to reliable sources of independent information on pensions options such as the
Money Advice Service or Pension Wise, which are both part of MaPS. For example, you
could signpost members to annuity comparison or drawdown tools on these websites.
You could also signpost to objective information on retirement living standards. If you
signpost to similar tools on the websites of FCA-regulated firms, you should satisfy
yourself that they are balanced and objective.
Under current legislation, if you signpost members to information sources from
commercial organisations, including FCA-regulated firms, you may be carrying out the
‘arranging activity’ (see ‘Introducing members to regulated pension products’ above).
For example, if you signpost to drawdown tools based on a specific product. If you
embed any external informational tools into the scheme’s offering, you need to do
this in a balanced way so that members do not think you are steering them towards a
specific outcome.
You can give members factual information which is generally available to the public to
provide context for the transfer value. So for a member who has reached minimum
retirement age, you could provide the level of income that could be provided by a
lifetime annuity currently available on the open market using the transfer value. Where
an exact equivalent annuity is not available, you should use the closest available annuity
for a fair comparison. In most cases, this is likely to be an index linked, joint life annuity.
This could also be shown alongside an early retirement quote from the DB scheme at
the same age for a more directly relevant comparison.
Where you show several annuity quotes, you can name the providers. But if you only
provide a quote for 1 named provider or product, you might be seen as recommending
a particular product or undertaking the arranging activity. You could also show the
range of available annuity quotes, without naming any providers (eg the lowest and
highest quotes from those offered by several providers). You can also signpost
members to information from the Money Advice Service on how they can shop around
for an annuity.