Last month, the FCA launched its Defined Benefit Advice Assessment Tool (“DBAAT“) as part of its strategy to reduce harm to consumers and improve the suitability of defined benefit (“DB“) transfer advice. The tool will help firms to understand precisely how the FCA assesses the suitability of DB transfer advice.

FCA

Background

The launch of DBAAT comes in light of the FCA’s concerns that consumers are being advised to move their pensions out of DB schemes, despite the fact that in most cases, such transfers are in not in consumers’ best interests.

It is part of a package of recent measures from the FCA and the government to help consumers make better-informed decisions. For example, last October, The Department for Work and Pensions announced plans to introduce a “Stronger Nudge” regime, requiring occupational pension schemes to ‘nudge’ members to take advice from Pension Wise before taking money out of their pensions (which we reported on here).

This tightening of pension freedoms aims to protect consumers and comes as a response to the 2015 pension reforms, which extended the choices available to members of defined contribution schemes wishing to access their pension benefits. As a result, there has been a surge in DB pension transfers, a number of which have recently been flagged by pensions’ consultants, XPS Pensions Group, as at risk of pension fraud.

How does the DBAAT work?

The DBAAT aims to help firms and pension transfer specialists understand the FCA’s file review methodology for DB transfer advice.

The DBAAT enables advisers to assess the suitability of any DB transfer advice given prior to 1 October 2020 e.g. in response to a complaint or as part of a review. The DBAAT is a spreadsheet containing a step-by-step process to help firms determine whether they obtained the ‘necessary information’ to advise their clients and it also provides examples of unsuitability. The tool lists the key factors firms should consider when assessing the suitability of advice, disclosure and, where relevant, the insistent client processes.

The FCA has confirmed that an updated DBAAT incorporating new rules which came into force on 1 October 2020, will be published in the coming months alongside finalised guidance to help firms understand the FCA’s expectations when they give DB transfer advice.

Comment

The FCA has recently stated that there has been signs of improvement in the DB transfer advice market, indicating that firms are starting to act more in line with the FCA’s key message that generally DB transfers are not in clients’ best interests. Hopefully, the DBAAT will serve to bolster and continue the downward trend in DB transfers which are often ill-advised.