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Introducing additional safeguards – supporting individuals to make an informed choice.
A number of stakeholders who supported retaining the current right for private sector transfer suggested that current safeguards could be improved. At present, although the majority of defined contribution schemes will only accept transfers if professional financial advice is taken, guidance for transfers from defined benefit schemes only stipulates that such advice has to be taken when transfers are instigated by the employer not when they are instigated by the employee.
The Government intends to make it a statutory requirement on the transferring scheme for all individuals who are considering transferring out of defined benefit schemes to take advice, from a professional financial adviser who is independent from the defined benefit scheme and authorised by the FCA, before transferring. The FCA have published a thematic report on enhanced transfer values out of defined benefit schemes, summarising examples of good and bad advisory practice. As a result, defined benefit schemes will be required to check that a member has taken advice from a professional financial adviser who is independent from the defined benefit scheme and authorised by the FCA before allowing a transfer out of the scheme. In most cases the individual pension member will need to pay for the financial advice. However, responsibility for paying for the financial advice will fall on the employer if the transfer is from defined benefit to defined contribution schemes within the same scheme, or as a result of an employer led incentive exercise. The proposal to make it a statutory requirement to take professional financial advice was recommended by a large number of stakeholders including the ABI and CBI. It will ensure that all pension fund members are fully informed before taking any decision, and counteract the risk that a significant number of pension scheme members act against their own best interests or are coerced out of their scheme. This requirement for professional financial advice would not apply to small pot holders with pension savings below £30,000 as the trivial commutation rules would still apply.