FSA expects firms to ensure suitable advice on transfers into SIPPs

The Financial Services Authority (FSA) has set out its expectation that firms give suitable advice to help customers make informed decisions about transferring built-up National Insurance rebates into Self-Invested Personal Pensions (SIPPs).

From 1 October this year, people will be able to contract out of the State Second Pension into a SIPP and transfer existing National Insurance rebates ("protected rights") from a personal pension into a SIPP. As with all advised transactions, the FSA expects firms to ensure that any advice around these decisions is suitable and based on an assessment of customer need in order to help consumers make decisions that are right for them.

This would include determining whether there is a genuine need for the investment flexibility and control associated with a SIPP, a clear explanation of the costs involved, and how the recommendation meets a customer's needs and attitude to risk.

In addition, following consultation, the FSA has today published a policy statement confirming that when advising on contracting out into a SIPP, firms will also need to provide a comparison of projected retirement income from the SIPP versus potential benefits from the State Second Pension. This requirement already exists in relation to contracting out into ordinary personal pensions.

Andrew Sykes, head of retail policy and unfair contract terms at the FSA, said: "Decisions relating to contracting out of the state second pension or transferring pots of protected rights are important and can have a significant impact on people's retirement income. We expect firms to ensure they make suitable recommendations based on what is best for their customers - including, from 1 October, when these transfers are made into a SIPP.

"At the same time, we would encourage consumers to make sure they fully understand the implications of leaving the state second pension or transferring accrued protected rights into a SIPP, to make sure it is the right decision for them."

The FSA is currently undertaking a review to assess the quality of advice on transfers into personal pensions, including SIPPs, since April 2006. The findings of the project will be published in the fourth quarter of this year.

The FSA's consumer website – Moneymadeclear (moneymadeclear.fas.gov.uk) – contains information to help consumers understand SIPPs and pensions more generally. This includes the printed guide The State Second Pension (formerly SERPS) - should you be contracted out? - free hard copies can be ordered online or by calling the FSA's Consumer Helpline on 0845 606 1234.