The FCA will review the advice of 254 firms that gave advice to British Steel pension scheme members, as it reveals figures showing a declining number of transfers taking place and fewer advisers operating in the sector.
Over £20bn of DB pensions were advised to transfer between 2018 and 2020, while £10.2 billion were recommended not to transfer, new FCA data shows.
The average transfer value reduced from £352,303 in 2015-18 to £336,496 in 2018-20, with a notable disparity between the average fund for those who were advised to transfer – £405,178 – vs those advised not to transfer – £267,814.
The proportion of people receiving defined benefit (DB) transfer advice who chose to transfer dropped substantially between October 2018 and March 2020, new FCA data shows. The DB transfer ‘conversion rate’ fell from 69 per cent between April 2015 and September 2018, to 57 per cent between October 2018 and March 2020.
The FCA has also revealed that 3,427 British Steel members were advised to transfer out of their DB scheme by firms currently active in the market. The regulator says it intends to follow up with advice firms “materially involved” in British Steel transfers.
Of the 1,310 firms currently active in the market, 254 firms – 19 per cent – provided 3,427 clients with a personal recommendation to transfer from the BSPS in 2017-2018.
The regulator has also identified that only 1 per cent of DB transfer funds go to workplace schemes.
An FCA spokesperson says: “We aim to follow-up with every firm that was materially involved in providing BSPS advice. As we have done to date, where we find that their advice may have been unsuitable, we will tell them to take appropriate corrective action.
“Where we suspect serious misconduct has occurred, we will undertake enforcement investigations. We are currently undertaking approximately 30 investigations into firms and individuals where the principal focus is DB pension transfer advice.”
AJ Bell senior analyst Tom Selby says: “Even before the FCA banned contingent charging in October last year, the proportion of people advised to swap their guaranteed DB pension for a defined contribution (DC) alternative had fallen significantly.
“From the regulator’s perspective this is viewed as a positive development as it continues to believe such transfers are unlikely to be in people’s best interests.
“Of course the other side of the coin is that, with the size of the DB transfer advice market shrinking dramatically in the face of tougher regulation and rising professional indemnity (PI) costs, many people who would benefit from advice simply cannot access it.
“And where someone would be better off switching from a DB to a DC scheme – for example because the death benefits are more favourable – if they cannot speak to an adviser they risk being stranded in a sub-optimal financial position.
“Despite the fall in the number of advice firms active in the DB transfer market, the UK’s history of guaranteed retirement income provision combined with the flexibility now available in DC means the scale of activity remains substantial. Between 2018 and 2020, a staggering £20.1 billion of DB assets were advised to transfer to a DC alternative, with a further £10.2 billion advised to stay put.
“There is a big disparity between the average fund size of those advised to transfer out of their DB scheme (£405,178) versus the average fund of those advised not to transfer (£267,814).
“While many will inevitably point to this as evidence of the problems caused by contingent charging incentives, it could reflect a variety of factors – including that those with bigger DB funds may have more assets elsewhere and thus may be less in need of the guaranteed income it provides.
“Throughout all this, the cloud of the British Steel transfer scandal hangs over the market. The FCA is rightly going through those cases with a fine toothcomb to make sure any poor behaviour is punished and customers treated unfairly are compensated.”