Last month, the FCA launched its Defined Benefit Advice Assessment Tool (“DBAAT“) as part of its strategy to reduce harm to consumers and improve the suitability of defined benefit (“DB“) transfer advice. The tool will help firms to understand precisely how the FCA assesses the suitability of DB transfer advice.

Background

The launch of DBAAT comes in light of the FCA’s concerns that consumers are being advised to move their pensions out of DB schemes, despite the fact that in most cases, such transfers are in not in consumers’ best interests.

It is part of a package of recent measures from the FCA and the government to help consumers make better-informed decisions. For example, last October, The Department for Work and Pensions announced plans to introduce a “Stronger Nudge” regime, requiring occupational pension schemes to ‘nudge’ members to take advice from Pension Wise before taking money out of their pensions (which we reported on here).

This tightening of pension freedoms aims to protect consumers and comes as a response to the 2015 pension reforms, which extended the choices available to members of defined contribution schemes wishing to access their pension benefits. As a result, there has been a surge in DB pension transfers, a number of which have recently been flagged by pensions’ consultants, XPS Pensions Group, as at risk of pension fraud.

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