Dispute over ‘mandatory’ cashflow modelling for DB transfers

A dispute over whether cashflow modelling is to become “effectively mandatory” for DB transfers has broken out between a software firm and the FCA. Mandatory use of cashflow modelling, to make the consequences of transferring out of DB pensions clear to consumers, was first called for by Prestwood in 2014. Paul Etheridge, chair of Prestwood Group, said then: “If an adviser is not using cash flow modelling I believe their clients are being short-changed – it is an essential tool for this day and age.” Prestwood repeated the demand last year with the publication of a report called ‘Addressing the Pensions Timebomb.’ Now the company claims its pleas have been answered, but the FCA has refused to confirm whether that is the case. Speaking at the PFS PowerLive conference in the Midlands yesterday, Julie Lord, director of Prestwood Software, said: “It has taken four years of Prestwood warning about possible mis-sales but from 1 October, the FCA has made it [cashflow modelling] effectively mandatory. “This is a huge step in the right direction. “However, we would like to see mandatory cashflow modelling used for all Financial Planning, and at the very least, retirement planning.” “The primary focus of DB transfer advice should be whether it’s in the client’s best interest to transfer out of their pension scheme but this must take into account the client’s goals and objectives.” The FCA denied the plan was to make the use of cashflow modelling mandatory and pointed to its ‘Advising on Pension Transfers – feedback on CP17/16 and final rules and guidance’ report, which was released in March. The relevant section read: “Firms are not prevented from using cashflow modelling software or any other type of software. “However, advisers should consider the part these tools play in explaining the options to individual clients. “The limitations of software cannot be used to limit advisers’ responsibility for providing suitable advice.” In response, Ms Lord said: “The FCA is effectively saying in the background that cashflow modelling is mandatory, when it comes to pension transfers, but will not come out and say it publicly which is disappointing and causes confusion for Financial Planners who want clarification.“How can advisers properly compare client options and carry out pension transfers without cashflow modelling to show the long term impact of the available choices - most people say the alternatives are just guesswork?“The FCA should clarify its position and make it clear that cashflow modelling is effectively mandatory when it comes to pension transfers and is not just best practice.”

Dispute over ‘mandatory’ cashflow modelling for DB transfers

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