Defined Benefit Abridged Advice
Written by Charlie Palmer on 09/10/2020

Defined Benefit Abridged Advice:

The FCA continues to focus on Defined Benefit Transfers, and indeed, many Firms have taken the decision to “remove their permissions” and cease activity in this area. Reasons given have tended to revolve around the hassle involved, issues with obtaining PI and the sheer work involved in trying to satisfy the ongoing updating of requirements from the FCA.

The latest FCA amendment to its rules has introduced a new concept of “abridged advice”, which appears to be an attempt to allow an element of individual advice prior and into the Triage Service / arrangements, with a view to also making it “less costly” than a full in-Depth Financial Review.

What is it?

Will it work?

What is it:

The Abridged Advice Service, which came into effect from October 2020 will enable an adviser to:

• Provide the consumer with a personal recommendation not to transfer or convert their pension; or

• Tell the consumer that it is unclear whether they would benefit from a pension transfer or conversion based on the information collected through the abridged advice process. The adviser must then check if the consumer wants to continue to full advice and make sure they understand the associated costs that will therefore be incurred. 

The abridged advice process should only contain the initial stages of a firm’s full advice process:

Completion of a Full Fact-Find;

Attitude to Risk / Capacity for Loss assessment; and also

Review / Consideration of the benefit structure from the client’s existing scheme(s)

At this point, it must be made clear that the process of Abridged Advice must:

Be carried out or checked by a suitably qualified Pension Transfer Specialist.

Involve a suitability report for advice not to transfer

Cannot involve any assistance to transfer or convert unless the client has taken full advice.


Where Firms offer said Abridged Advice, there will need to be an offset of the advice fee / charge for this service from any full advice charge. 

The only exception being if a client decides to use different advisers for the abridged advice and the full advice process. 

There is also the process that a firm needs to adopt to explain this process to clients and to have suitable documentation including “fee agreements” if appropriate covering the Abridged Service.

It is important to note that as Abridged Advice does not permit companies to consider a proposed receiving scheme/ investment / pension solution, there could be an issue around VAT, as the service being provided will NOT result in a recommendation / arrangement of a “product”. 

This also brings another issue into play if the client then proceeds to “full advice”. 

The FCA’s policy statement on abridged advice does not provide any real clarification, stating:

 “The VAT treatment of abridged advice is a matter for HM Revenue & Customs.”

Businesses are permitted to provide abridged advice free of charge but must not do so in an attempt to “get around” the FCA ban on contingent charging.

Any company offering abridged advice must have a clearly defined policy in respect of dealing with clients who qualify for abridged advice, and this should include a description of how, and the circumstances in which, a company might move from abridged to full advice.

Firm’s “client Agreements / Propositions” must make it clear how the abridged advice is charged for and then offset against full advice costs. 

Will it work?

Is the FCA attempting to resolve some existing issues, such as Advisers providing “advice” during the Triage process, and the ban on Contingent charging? Difficult to tell………

There are already examples of people who have paid large sums of money in fees to be told “not to transfer”, will this be another avenue for the same?

As the FCA still take the stance that the initial position that should be adopted is that is “unlikely that a transfer will be suitable”, are clients just going to be paying a fee for someone to say, don’t transfer, or alternatively, incur additional fees for the full advice process, after which the advice could still be to “leave the benefits where they are”. 

Within the Compliance world, we do have concerns whether the barrage of complaints that have been seen within the industry around “I was miss advised to transfer my pension” could start to potentially be replaced by clients complaining that they should been advised to transfer…….

So again, as with everything Financial Services, there will need to be a clear demonstration of fact finding, know your client and gathering of sufficient information and evidence that the client was given suitable advice at Abridged Advice stage.

It remains essential that clients understand “what they are giving up” should they transfer from a defined benefit scheme. 

It will be interesting to see how Firms re act to this, as within IFAC, the number of Companies offering DB transfer advice has dramatically reduced over the last two years, although this does allow the ones remaining to have a good selection of potential business

As somebody who has recently investigated transferring their own DB scheme, it is clear that Advisers are very cautious and concerned about the possibility of a complaint, but also getting it right. In other words, when is it good advice to transfer, and even, do we have PI approval to go ahead……

There are lots of articles and comments on this area, and the link to the FCA communication is detailed below

https://www.fca.org.uk/publications/policy-statements/ps20-6-pension-transfer-advice-feedback-cp-19-25-final-rules

in view of the above process, IFAC are reviewing Client Agreements / Suitability Reports specifically in relation to these areas.

John Downs

Compliance Director. 


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