FCA unveils pension transfer reforms to help savers make more informed decisions

The financial watchdog, the Financial Conduct Authority (FCA), has proposed a raft of changes to pension transfer rules to help savers make more informed decisions when it comes to switching pensions.

What’s changing?

Firms will have to share information

One key proposal is to require that receiving pension plans must share detailed information about an individual’s old pension plans before completing the transfer. This information will need to be provided in one clear information pack, making it easier for savers to understand their options.

Why is it doing this? The FCA noted that many people switch pensions without fully understanding what they are giving up. Research shows that 57% of savers don’t even know that fees (charges for managing your pension) are applied to their pension accounts.

All pension plans charge fees, and while some are small, larger fees can significantly reduce your retirement savings. Therefore, it’s crucial to ensure that you are paying the lowest fees possible to maximize your pension growth over time.

What does that mean for me? The goal of providing this information is to help savers understand what they are giving up compared to what they are switching to. This transparency will enable easier comparisons between different pension plans and should help prevent individuals from switching to options with higher fees or losing valuable benefits in their old plans without realizing it.

Online pension planning tools will improve

Pension companies will change their current rules to allow firms to offer better online tools, such as those that show estimated future pension amounts. The aim is to help customers plan for retirement and engage more effectively with their pensions.

The FCA stated: “Our proposed rules aim to enable firms to develop tools that help consumers better engage with their pensions and understand: the range of choices they have… and the potential impacts of different choices on their retirement outcomes.”

What does this mean for me? With these improved tools, you’ll be able to see how different choices—like saving more money or retiring later—could affect how much money you have when you retire.

Additionally, these tools will help you understand factors beyond your control, such as investment growth rates (how much the money you invest can increase over time), which can greatly influence the total value of your pension.

Pension transfer incentives could reduce

The regulator is closely examining the use of cash incentives (money offered as a reward) to encourage pension transfers, warning that these incentives can lead people to transfer their pensions without fully understanding the long-term effects.

While the FCA is not outright banning these incentives, it has indicated that its new disclosure requirements (rules about the information that must be provided) and adherence to ‘Consumer Duty’ (a requirement for firms to act in the best interests of their customers) will likely reduce their use. The FCA will continue to monitor the market and the use of incentives moving forward, ready to take further action if necessary.

The FCA commented: “At this stage, we are not proposing an explicit ban on incentives. We believe that following the Consumer Duty will effectively limit their use in the non-advised market (where no professional advice is given). However, we will monitor how the market responds to the new rules and may make further changes if needed to protect consumers.”

“We believe it would be unlikely to be compatible with Consumer Duty requirements, such as the obligation to act in good faith (being honest and fair), for firms to offer incentives that undermine the importance of the information presented to the consumer,” it added.

What does this mean for me? At this stage, nothing concrete, but you may see less cash incentives floating around for pensions in future, as the FCA is attempting to limit their usage.