The Financial Conduct Authority has announced it will take further action after finding a “concerning” number of advisers recommending transfers out of defined benefit pension schemes.
In some cases it said firms were recommending that 75 per cent of clients transfer out of their workplace DB scheme, despite the regulatory guidance that advisers should start from the position that a transfer is not suitable.
After reviewing cases at more than 3,000 firms, the FCA found that too much of the advice given on this issues “was still not of an acceptable standard.”
The FCA surveyed 3,015 firms and found that between April 2015 and September 2018, and found that 2,426 firms had provided advice on transferring their DB pension.
In total 234,951 scheme members had received advice on transferring a DB pension, with a transfer being recommended to 162,047 members. In other words, almost 70 per cent of these advice cases resulted in a recommendation to switch.
In contrast less than half this number – 72,904 – were advised not to transfer out of their DB scheme.
The total value of DB pensions where transfer advice had been provided was £82.8bn with an average value of £352,303. At least half the firms in this survey, 1,454 firms had recommended 75 per cent of more of their clients to transfer.
FCA executive director of supervision, wholesale and specialists Megan Butler says: “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.”
However the FCA did point out that one reason for this high figure may be a robust robust initial guidance service triaging clients. Those who were initially steered away from a DB transfer may not have been included within these figures as they didn’t receive full advice.
The FCA said 1,346 firms reported data on the total number of clients who had not proceed past the firm’s initial guidance. The total number of clients reported as not proceeding to advice was 59,086.
However when these ‘triaged’ clients are factored, advisers were still recommending a transferring 55 per cent of cases – a figure that many in the industry deem too high.
Although the data are not an assessment of the suitability of advice, they give the FCA the information it needs to focus its supervision work to drive up the quality of advice.
The FCA has already started visiting some firms to complete a full assessment of their approach to DB advice, focusing on key aspects of firms’ business models and processes which could give rise to harm.
The FCA will also be writing to all firms where the potential for harm has been identified in the data the firm has supplied. This will set out the FCAs expectations and the actions firms should take.
Canada Life technical director Andrew Tully adds: “This market data from FCA provides further insight into behaviours around DB transfers. What it doesn’t provide is any information around the quality of advice which is the key issue.
‘While it appears a higher percentage of people are transferring than would be expected there are a couple of important elements to bear in mind.
“Many firms have operated an informal triage service over the last few years, so the figures for those not proceeding to advice are likely to much higher than those mentioned by FCA.
“In addition, there is often a relatively high cost for advisers to undertake work to consider whether a transfer is suitable or not and this will put off many people. So there is an element of self-selection, as only those who believe their particular circumstances mean a transfer is suitable are likely to be comfortable with the cost.
‘It is important to remember most people are likely to be better remaining in their DB scheme unless they have a specific set of circumstances which mean a transfer may be suitable, such as ill-health or being heavily in debt.’