Final Salary Pension Sign Offs

Final Salary PensionAre final salary pension sign offs actually advice about pensions or just sign offs? There is a difference.

The Chartered Insurance Institute ( CII ) has recently issued all its members guidance as to how it expects final salary pension advice to be conducted,  referring to FCA COBS 19  .

We have been approached recently by non-UK firms looking for organisations like ourselves to provide final salary pension sign offs. The assumption being made that the process is just a box ticking exercise needed to enable pension members to transfer from a final salary scheme- whether this be in their best interest or not. The discussion with these firms does not progress beyond the first call.

This all referes to The Pension Schemes Act s.48  – regarding ensuring the member has received appropriate advice – came into effect April 6th according to  Statutory Instrument 2015-742 section 2(a)(i). 

This requires that trustees or scheme managers check that regulated financial advice has been taken before allowing a transfer to proceed, where the proposed transfer involves a DB pension, or other safeguarded benefits, worth more than £30,000.

I will come back to the comment “Regulated financial advice has been taken“ later.

Final Salary Pension Sign Off-The Buck Stops Here

It may come as a surprise to non-UK firms that the ultimate responsibility for the advice for the transfer remains with the UK regulated IFA that provided the final salary pension sign off. In other words, if the non-UK adviser does not manage the pension well then the responsibility is with the firm that facilitated the sign off in the first place.

The CII make it clear “It is not acceptable for a firm without the permission to outsource the transfer analysis to a pension transfer specialist or to a firm with the permission, and claim to be advising on the pension transfer.“ The adviser must be the pension transfer specialist.

“Unless the advice has taken into account the likely expected returns of the assets, as well as the associated risks and all costs and charges that will be borne by the client, it is unlikely that the advice will meet FCA expectations (at COBS 19.1.2 and 19.1.6-19.1.8  . What this means is that a firm advising on a pension transfer should not undertake a comparison using generic assumptions for hypothetical receiving schemes. The firm must take into account the likely expected returns of the assets in which the client’s funds will be invested as well as the specific receiving scheme.”

What should be happening ?

The CII have spelt it out.

“A recommendation to transfer should only be made if this can be clearly shown to be demonstrably suitable and in the client’s best interests.

 Specifically the FCA says (COBS 19.1.6G08/06/2015):

  • When advising a retail client… whether to transfer… a firm should start by assuming that a transfer, conversion or opt-out will not be suitable. A firm should only then consider a transfer, conversion or opt-out if it can clearly demonstrate, on contemporary evidence, that the transfer, conversion or opt-out if it is in the client’s best interests. (COBS 19.1.7G08/06/2015)
  • When a firm advises a retail client on a pension transfer, it should consider the client’s attitude to risk including, where relevant, in relation to the rate of investment growth that would have to be achieved to replicate the benefits being given up
  • When giving a personal recommendation about a pension transfer, a firm should clearly inform the retail client about… the consequent transfer of risk from the defined benefits pension scheme … to the retail client
  • Including the extent to which benefits may fall short of replicating those in the defined benefits pension scheme…
  • In considering whether to make a personal recommendation, a firm should not regard a rate of return which may replicate the benefits being given up from the defined benefits pension scheme or other scheme with safeguarded benefits as sufficient in itself.”

 Advice- final salary pension sign offs

I referred to the comment “Regulated financial advice has been taken“, this clearly is not the same as a final salary pension sign off.

This advice requirement for final salary pension transfers means the pension transfer specialist should communicate clearly the key costs, risk, consequences and benefits of a transfer. Specifically, it should include bespoke member suitability.

Any report that does not provide advice, or a recommendation, is not worth the paper it is written on. Generic summaries of the pros and cons of a transfer is not sufficient and it is not acceptable to then leave the client with the decision as to whether a transfer is going to be suitable or not and getting the client to sign a disclaimer to confirm this.

How any firm, that offers a sign off service for clients of firms without the pension transfer permissions, can claim to provide bespoke member suitability if they have not spoken to and had extensive contact with the client is beyond me. However, it seems some firms are happy to provide this sign off service by claiming that they are not making a recommendation, they do not take into account the actual investment costs or properly understand* the pension members acceptance of risk and capacity for loss.

I can only surmise that firms that offer this sign off service are interested in the extra fees that they can make without being overly concerned about the consequences for the pension holder.

(*By that I mean assessing themselves and not leaving this imporant part of the jigsaw up to the introducing firm )


Remember, there is a requirement to take advice and so advice must be given. If the advice is not to transfer, then that should be clearly stated and the pension transfer specialist should take no part in any transfer. If no specific advice is given, the client should refuse to pay for the report.

Always speak to the adviser/company providing the report and ask them what they are actually advising and make sure they know all about your circumstances, requirements and plans- anything less is just not sufficient.

The CII state, within their recent guidance document

“Currently, it remains our view that those advisers that facilitate a transfer against their own advice, will be party to arranging an unsuitable solution and as such, might be deemed liable in the event of a future complaint in the absence of any guarantees or input from the regulator on how the Financial Ombudsman Service will interpret such claims.”

End of blog

The views expressed in this article are not to be construed as personal advice. You should contact a qualified and ideally regulated adviser in order to obtain up to date personal advice with regard to your own personal circumstances. If you do not then you are acting under your own authority and deemed “execution only”. The author does not except any liability for people acting without personalised advice, who base a decision on views expressed in this generic article. Where this article is dated then it is based on legislation as of the date. Legislation changes but articles are rarely updated, although sometimes a new article is written; so, please check for later articles or changes in legislation on official government websites, as this article should not be relied on in isolation.

This article was published on 5th January 2018


Chris Lean

Chris is a Chartered Financial Planner who writes blogs and articles to simplify and explain some of the financial issues that affect UK expats. Subjects include; hot topics, regulation and the ever-changing world of finance.

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