The FSA has proposed changes to the way pension transfer values are calculated.
It estimates the changes will prevent an undervaluation of benefits of up to £20bn.
The proposals came after pensions minister Steve Webb vowed last May to protect pension scheme members from poor advice when they are offered incentives to transfer from defined benefit (DB) to defined contribution (DC) pensions.
The FSA proposes:
• to update the rules for calculating mortality to be aligned with those used by the Board for Actuarial Standards, and therefore making them consistent with annual pension statements that all personal pension holders receive once a year;
• to calculate annuities on a gender-equal mortality rate, in line with the European Court of Justice's decision in March 2011 (see Notes to Editors 2);
• to introduce a Consumer Price Index (CPI) assumption for re-valuing pensions in deferment, reflecting legislative changes made by the government in 2011;
• to require CPI-linked benefits to be valued using the Retail Price Index (RPI)-linked annuity interest rate;
• that Limited Price Indexation (LPI) annuities will be valued on the same assumptions as RPI-linked annuities; and
• that the comparison provided to the member is illustrated on growth rates that take into account the likely returns of the pension fund assets as well as the transfer of risk from the DB scheme to the member.
It said the existing Transfer Value Analysis (TVA) is "complex" and hopes the proposed changes ensure that scheme members considering a transfer are given a fair assessment of what they will receive in retirement.
Sheila Nicoll, the FSA's director of conduct policy, said: "It is vital that employees get a fair deal as more and more employers are looking to reduce liabilities by offering members of defined benefit schemes a move to a personal pension.
"As things stand, there is a high risk members receive unsuitable advice as a result of the mechanistic approach to analysing transfer values taken by some advisers.
"These changes are important to make sure that members' interests are at the centre of any decision to transfer and that any advice to transfer is suitable.
"We have seen examples of advisory firms recommending a transfer when there is little or no justification to do so, or where the reasons given for an individual to transfer have nothing to do with their particular circumstances.
"We are not saying that every transfer exercise is bad and we recognise that there will be some people, albeit a small minority, who can benefit from such a move - but they must all be treated fairly."
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