Your business

The suitability of retirement advice, better outcomes and the journey ahead

Alastair Black

Now and in a future post-pandemic world, the focus on better outcomes for consumers at retirement has arguably never been more important, says Alastair Black, Head of Platform Proposition.

One piece of work impacted by the coronavirus pandemic is the FCA's second suitability review of retirement advice. Due to take place this year, it has been deferred until the start of 2021.

While the FCA rightly continues to focus on immediate priorities during the Covid-19 crisis to ensure fair outcomes for consumers, it's clear the regulator wants to progress with plans for its next review into retirement advice.

As we face the future, the work by the FCA that places consumer interests at the heart of the advice process for better outcomes at retirement, and gives advisers more certainty about expectations, has arguably never been more important.

Guidance around DB transfer advice was always a priority

Although the suitability review has been delayed, the regulator's ongoing assessment of DB transfer advice is continuing as planned. This is positive news as the assessment is a really good indicator of what to expect when the FCA's review of retirement advice does get underway next year.

Ever since pension freedoms were introduced and the huge surge in consumer demand that followed, the FCA quite rightly prioritised guidance to advisers around DB transfer advice. Consumers in this category were carrying the greatest risk of giving up a valuable guarantee they didn't understand.

In many cases, DB transfer advice is a straightforward choice between whether the client's goals are better met by a guaranteed income for life and staying in a DB scheme, or by a flexible retirement and transferring out of a DB scheme.

The FCA's Guidance Consultation: Advising on pension transfers

As you'll be aware, this guidance, published in early June, included further rules for DB transfer advice. It clearly called out the need to articulate what individual client goals are at retirement and how advice will deliver the best outcomes.

In addition to the well-publicised ban on contingent charging, the final rules for DB transfer advice cover FCA proposals which allow advisers to provide an abridged advice process. The goal here is a good one - to help consumers access initial advice at a more affordable cost. At this stage, however, it's unclear whether this move will be commercially viable for adviser firms as they may still feel the need to carry out the majority of advice processes, making the difference too small.

The final rules also highlight how advisers must now consider an available workplace pension as a receiving scheme for a transfer and, if recommending an alternative solution, demonstrate why that alternative is more suitable. Here, the FCA's aim appears to be on ensuring advisers go for a low-cost solution and don't charge unnecessary ongoing advice charges. But for those clients going into drawdown, the focus may be more on both the services within the platform or product chosen, and the ongoing service of their adviser.

A shift in focus to advised clients in drawdown

With valuable progress being made on the suitability of DB transfer advice, the regulator is forming its views in terms of what good looks like and will apply a similar lens on all retirement advice.

And five years on from the launch of pension freedoms, we've reached the stage where the FCA is shifting its focus to advised clients in drawdown. It's the natural next step for the regulator.

Supporting advised clients in drawdown for better outcomes was a key focus of the FCA's 'Dear CEO' letter sent out to adviser firms at the beginning of the year. The letter highlighted how the same scrutiny and controls should be in place for DC clients at retirement as those for DB transfer clients, so the advice given is consistent.

For adviser firms, a worthwhile exercise is to look at the retirement advice given to DC clients and the advice given to DB transfer clients, and compare the two.

As the value of the guarantee the client would give up in DB is more than likely less than the cost of buying that guarantee from a DC environment, there will be differences. But it's about recognising that if a set of processes is followed, the client can make the right choice for their personal circumstances between a guaranteed or a flexible income at retirement.

Advisers have always been well placed to support better client outcomes

While the FCA continues on its path to set clearer expectations for advisers and deliver better outcomes for clients, given the work advisers have done to adapt to pension freedoms, they're already well placed to deliver good retirement advice.

When it kicks off early next year, the regulator's second suitability review of retirement advice will be an important piece of work. And, as we look down the road ahead where the pandemic has introduced a certain degree of uncertainty, the focus on delivering better outcomes for consumers has never been so vital.

More information on the FCA's Guidance Consultation: Advising on pension transfers

The FCA's final rules on DB transfer advice:

Or take a look at our summary guides:


The value of investments can go down as well as up and your clients could get backless than they paid in.

The views expressed in this blog should not be regarded as financial advice.