COBS 19.1 Pension transfers, conversions, and opt-outs5

7A firm should comply with this section in order to give appropriate independent advice for the purposes of section 48 of the Pension Schemes Act 2015.

7When a firm uses a pension transfer specialist to check its proposed advice on pension transfers, pension conversions and pension opt-outs, it should ensure that the pension transfer specialist takes the following steps:

1. (1)

   checks the entirety and completeness of the advice;

2. (2)

   confirms that any personal recommendation is suitable for the retail client in accordance with the obligations in COBS 9.2.1R to 9.2.3R and including those matters set out at COBS 19.1.6G; and

3. (3)

   confirms in writing that they agree with the proposed advice before it is provided to the retail client, including any personal recommendation.

7COBS 9 contains suitability requirements which apply if a firm makes a personal recommendation in relation to advice on conversion or transfer of pension benefits.

1. (1)

   7This guidance applies if a firm presents information in the appropriate pension transfer analysis which considers the impact of:

   1. (a)

      the Pension Protection Fund and the FSCS; or

   2. (b)

      scheme funding or employer covenants.

2. (2)

   If a firm presents the information in (1) it should, in accordance with Principle 7 and the fair, clear and not misleading rule, do so in a way that is balanced and objective.

3. (3)

   If a firm does not have specialist knowledge in assessing the impact of (1)(a) or 1(b), it should consider not including the information.

1. (1)

   7This guidance applies if a firm presents information in the appropriate pension transfer analysis:

   1. (a)

      that contains an indication of future performance; and

   2. (b)

      is produced by a financial planning tool or cash flow model that uses different assumptions to those shown in the key features illustration for the proposed arrangement.

2. (2)

   A firm presenting the information in (1) should explain to the retail client why different assumptions produce different illustrative financial outcomes.

1. (1)

   The guidance in this section relates to the obligations to assess suitability in COBS 9.2.1R to 9.2.3R.7

2. (2)

   When a firm is making a personal recommendation for a retail client who is, or is eligible to be, a member of a pension scheme with safeguarded benefits and who is considering whether to transfer, convert or opt-out, a firm should start by assuming that a transfer, conversion or opt-out will not be suitable.7

3. (3)

   A firm should only consider a transfer, conversion or opt-out to be suitable if it can clearly demonstrate, on contemporary evidence, that the transfer, conversion or opt-out is in the retail client’s best interests.7

4. (4)

   To demonstrate (3), the factors a firm should take into account include:7

   1. (a)

      the retail client’s intentions for accessing pension benefits;7

   2. (b)

      the retail client’s attitude to, and understanding of the risk of giving up safeguarded benefits (or potential safeguarded benefits) for flexible benefits;7

   3. (c)

      the retail client’s attitude to, and understanding of investment risk;7

   4. (d)

      the retail client’s realistic retirement income needs including:7

      1. (i)

         how they can be achieved; 7

      2. (ii)

         the role played by safeguarded benefits (or potential safeguarded benefits) in achieving them; and 7

      3. (iii)

         the consequent impact on those needs of a transfer, conversion or opt-out, including any trade-offs; and7

   5. (e)

      alternative ways to achieve the retail client’s objectives instead of the transfer, conversion or opt-out.7

If a firm provides a suitability report to a retail client in accordance with COBS 9.4.1R7 it should include:

1. (1)

   a summary of the advantages and disadvantages of its personal recommendation;

2. (2)

   an analysis of the financial implications (if the recommendation is to opt-out); 7

3. (2A)

   a summary of the key outcomes from the appropriate pension transfer analysis (if the recommendation is to transfer or convert); and7

4. (3)

   a summary of any other material information.

If a firm proposes to advise a retail client not to proceed with a pension transfer, pension conversion 5 or pension opt-out, it should give that advice in writing.

5Where a firm has advised a retail client in relation to a pension transfer, pension conversion or pension opt-out, pension transfer or pension conversion7, and the firm is asked to confirm this for the purposes of section 48 of the Pension Schemes Act 2015, then the firm should provide such confirmation as soon as reasonably practicable.