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Dear CEO | Release Date: 23rd March 2019

To read a longer summary of this Dear CEO letter, click here.

To access the original FCA document, click here.

Short Summary

The Financial Conduct Authority (FCA) has issued guidance to firms managing defined benefit (DB) to defined contribution (DC) pension transfers. This follows a review that pinpointed significant risks to consumers if mishandled. The FCA outlines several expectations for firms to mitigate these risks effectively.

Product Design and Target Market: Firms must ensure that DC products are suitable for customers transitioning from DB schemes, particularly if these products predate the 2015 pension freedoms. It is crucial that firms’ reviews provide comprehensive management information to support appropriate decision-making for incoming DB business.

Information for Distributors: Information provided to advisers must be balanced and precise, fostering responsible and unbiased recommendations. Firms are expected to ensure communications prioritise good customer outcomes.

FCA Permissions and Management Information (MI): Firms should verify advisers’ permissions to advise on pension transfers regularly and ensure that MI is detailed enough to monitor customer and adviser behaviours effectively, identifying and addressing any negative trends.

Remuneration and Governance: Remuneration policies should encourage customer-centric outcomes, and firms should undertake thorough governance reviews to ensure robust risk management processes are in place for pension transfers.

Documentation and Regulatory Compliance: All adviser tools and documentation must be current and reflective of the latest regulatory standards, ensuring they present a balanced view of the risks and benefits of DB to DC transfers.

Key Actions:

Firms are urged to ensure that all practices and procedures comply fully with FCA regulations and to address any identified shortcomings promptly. The FCA expects firms to review and, if necessary, enhance their frameworks and to discuss their approach in future regulatory engagements. Compliance will be closely monitored, and firms must be prepared to demonstrate their adherence to these guidelines to avoid potential regulatory actions.

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