Too much advice to people thinking of transferring out of their direct benefit (DB) pension schemes is "still not of an acceptable standard", the Financial Conduct Authority said today.
The watchdog 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. The FCA has repeatedly made clear its expectations of financial advisers, while strengthening the rules around pension transfer advice.
After surveying 3,015 firms, the FCA found that between April 2015 and September 2018:
- 2,426 firms had provided advice on transferring a DB pension;
- 234,951 scheme members had received advice on transferring, and of these, 162,047 had been recommended to transfer out and 72,904 had been recommended not to transfer;
- the total value of DB pensions where transfer advice had been provided was £82.8bn with an average value of £352,303;
- 1,454 firms had recommended 75% or more of their clients to transfer – though the FCA notes that one reason a firm may be recommending a large number of clients to transfer is if the firm has a robust initial guidance service triaging clients. When triaged clients of those firms who also reported their number are factored in, 55% of clients were recommended to transfer.
The FCA added that although the data were not an assessment of the suitability of advice, they gave it the information it needed to focus its supervision work to drive up the quality of advice.
It has already started visiting some firms, beginning with those most active in the market. These visits will allow the FCA to complete a full assessment of the firms’ 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 FCA's expectations and the actions firms should take.
Megan Butler, executive director of supervision, wholesale and specialists at the FCA commented: "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."