Too much pension transfer advice is not of an acceptable standard, according to the City regulator, which says what it has seen has been “deeply concerning and disappointing”.
The Financial Conduct Authority (FCA) is concerned that firms are recommending that large numbers of consumers transfer out of their defined benefit (DB) pension schemes – despite the FCA’s stance that transfers are likely to be unsuitable for most clients.
It has announced further action on DB pension transfers.
DB pensions, such as final salary schemes, are sometimes described as “gold-plated” because they promise savers a certain level of income when they retire.
The regulator said despite repeatedly making its expectations clear, “too much advice the FCA have seen to date is still not of an acceptable standard”.
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 decisions 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 FCA surveyed 3,015 firms and found that between April 2015 and September 2018, 2,426 firms had provided advice on transferring their DB pension, with 234,951 scheme members receiving advice on transferring.
Of those, 162,047 members had been recommended to transfer out and 72,904 had been recommended not to transfer.
The average DB pension pot had a value of £352,303.
The FCA found 1,454 firms had recommended three-quarters (75%) or more of their clients to transfer.
It has already started visiting some firms, starting with those most active in the market.
These visits will allow the regulator 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, setting out the FCAs expectations and the actions firms should take.