The Financial Conduct Authority (FCA) has published the results of data it collected from firms regarding final salary (defined benefit) pension transfers. The exercise seems to have given the FCA further cause for concern, especially as it has been voicing its concerns over firms’ advice standards in this area for some time.
The latest FCA press release says on this subject:
“Too much advice the FCA has seen to date is still not of an acceptable standard. The FCA is concerned that firms are recommending that large numbers of consumers transfer out of their defined benefit pension schemes despite the FCA’s stance that transfers are likely to be unsuitable for most clients.”
Despite the regulator still saying that final salary transfers would be unsuitable for most people, the data collection exercise has revealed that more than two-thirds (69%) of cases result in advice being given to transfer out.
The FCA surveyed 3,015 firms and requested data on their pension transfer activity for the period April 2015 to September 2018. The regulator found that:
• 2,426 firms (more than 80% of the total) had provided advice on transferring final salary pensions
• A total of 234,951 final salary scheme members had received advice on transferring, and of those as many as 162,047 (69%) had been recommended to transfer out
• 1,454 firms had recommended 75% of more of their clients to transfer
Despite the high proportion of customers being advised to transfer, the FCA said that some firms may be carrying out some form of initial triage service, and that this initial guidance may have been geared towards identifying customers who would not benefit from transferring. Clients who then received guidance of this nature may then not have proceeded to receiving formal advice, so this could be skewing the figures to a limited extent.
The FCA will follow up its survey by visiting some of the firms who do the most final salary transfer work. A wider range of firms can expect to be visited by the regulator in 2020.
The FCA has previously said that its reviews have found that less than 50% of pension transfer cases result in suitable advice being given. Across all product areas, the FCA has found that around 90% of cases result in suitable advice, which represents a considerable disparity.
In May 2019 the FCA announced a variety of bans, fines and censures on three firms and five individuals over pension transfer advice failings.
Megan Butler, Executive Director of Supervision, Wholesale and Specialists at the FCA said:
“We have said repeatedly that, when advising on DB transfers, advisers should start from the position that a transfer is not suitable. It is deeply concerning and disappointing to see that transfers are still being recommended at the levels we have seen.
“Deciding whether to transfer out of a DB scheme is one of the most complex financial decision a consumer may have to make, and it is vital customers get high quality advice. Our ambition is for pension transfer advice to reach the same standard as that of the rest of the financial advice market.”
The information shown in this article was correct at the time of publication. Articles are not routinely reviewed and as such are not updated. Please be aware the facts, circumstances or legal position may change after publication of the article