How can DB
schemes help members make good choices?

Our viewpoint

In this joint blog, Jonathan Camfield and Charlotte Cartwright, Legal Director at Eversheds Sutherland look at the issue of pension schemes and member advice.

Members of Defined Benefit pension schemes have long had a range of options about how and when to take their benefits. Most schemes offer the option to take benefits earlier or later than normal pension age, many offer additional member options, including the chance to reshape benefits, and most members have a statutory right to transfer out of the scheme altogether. 

On top of this, the introduction of pension ‘freedom and choice’ in 2015 has led to more members exercising the right to transfer out in order to take advantage of the wider range of options now available.

The considerable flexibility available to members creates a need and a desire for more information, guidance and advice so that members can make the best of their pensions, but also creates a risk that poorly informed members may make bad decisions. And most trustees and corporate sponsors want to do their best to help members in this regard.

But trustees and sponsors may also be wary of going too far. There are regulatory boundaries between information and factual guidance on the one hand and financial advice on the other, and the exact location of those boundaries is not always clear cut. In addition, trustees may be nervous that if they direct members towards advice or guidance and things turn out badly, they may be exposing themselves to legal risk.

The FCA published a consultation document (GC20/1) last year which suggested that schemes which provide information about alternatives to scheme benefits (such as the annuity that could be bought with a transfer out, or the returns on a potential drawdown investment) may be going too far. Indeed, some stakeholders interpreted it as saying that even supplying unsolicited information about Cash Equivalent Transfer Values (CETVs) could now be unacceptable.

In response to this feedback, the Pensions Regulator (TPR) and the FCA published a joint document in March 2021 entitled “Guide for employers and trustees on providing support with financial matters without needing to be subject to FCA regulation” (Guide for employers and trustees on providing support with financial matters without needing to be subject to FCA regulation ( which helped to clarify the situation. This document formed the basis for a webinar held on 19th April 2021 with contributions from the FCA, Eversheds Sutherland and LCP. The full event can be viewed here

Key points made in the discussion were:

  • There is no barrier to schemes providing factual information about member rights and options within the scheme; schemes can also provide unsolicited information about CETVs, provided they have considered whether this is likely to result in good outcomes for members, and should provide appropriate context for this information; - Whilst there are legal risks to trustees in supporting members in making decisions, especially around a member’s desire to consider transferring out of the scheme, there are also risks of inaction, as this may increase the risk of poor member outcomes;
  • To help mitigate these risks, a growing number of schemes make one or more firms of Independent Financial Advisers (IFAs) available to members to provide advice on scheme benefits and the pros and cons of transfers; the state of the IFA market means there may well be advantages to members where schemes do this – this is also supported by TPR’s and FCA’s new guidance;
  • Where IFAs are appointed, schemes should undertake due diligence to make sure that the IFA firm(s) they appoint have the requisite permissions and are of good standing, and will generally wish to undertake ongoing monitoring to ensure that high standards are being maintained; the recent comments by the Pensions Ombudsman (see more here) are helpful in this regard;

The presentations prompted a large number of questions which covered a range of topics. Key areas included:

  • Tax treatment of employer subsidised or provided advice – in general, provision of subsidised advice may generate a ‘benefit in kind’ tax charge for employees (but less likely for deferred members) but there are exemptions, and the position may differ when the IFA is appointed by the trustees;
  • Whether drawdown illustrations are allowed – the FCA’s position is that only current factual information can be provided (such as the annuity available today which closely matches the DB rights being given up) but that projections of future annuity rates or potential investment returns on drawdown options belong within the provision of regulated financial advice;
  • What it means for appointed advisers to be ‘independent’ – the FCA guidelines say that it may be ‘harder’ for a restricted advice firm to meet the requirement to provide independent advice “..because the independent advice must be given on a range of pension products, including more than just insurance-based products”; the panelists agreed that the key issue is that the IFA firm is effectively “whole of market” when providing advice in the pensions area.

At a recent LCP event (In conversation with Charles Counsell, CEO of The Pensions Regulator, in conversation with Steve Webb | Lane Clark & Peacock LLP ( the Chief Executive of the Pensions Regulator referred to trustees who support members in making good decisions about potential DB transfers and about retirement options more generally as ‘forward-thinking’ and we agree.

There are clearly issues for trustees and sponsors to consider around ensuring that information and guidance supplied to members is factual and does not steer them towards a particular course of action. But there is no doubt that the choices faced by members are often complex and that they are likely to achieve better outcomes if schemes can help them to access high quality, impartial financial advice where appropriate.

For more information on legal issues around setting up IFA support for members and for advice on the practical issues involved, contact:

Jonathan Camfield, partner, LCP –

Charlotte Cartwright, legal director, Eversheds Sutherland –

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