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The City regulator has renewed its probe into advisers transferring ‘defined benefit’ (DB) or ‘final salary’ pensions, warning that "too much advice still not of an acceptable standard”.
Billions of pounds have been taken out of the DB schemes as people have transferred into more flexible defined contribution pension schemes, following the April 2015 pension freedom reforms. Those transferring DB pensions worth more than £30,000 must seek financial advice.
In a letter sent to financial advisers, the Financial Conduct Authority (FCA) said: “We remain concerned firms are recommending large numbers of consumers transfer out of their DB pension schemes despite our stance that transfers are likely to be unsuitable for most clients.”
The watchdog is undertaking a wide-ranging programme of data-led supervision work assessing the processes and client outcomes, in a bid to crackdown on unsuitable pensions advice. The FCA expects advisers to begin from the assumption that a transfer is unlikely to be suitable for their clients.
Advisers have been asked to take action, ensuring they have identified and are managing the risks associated with the DB pension transfer business.
Tom McPhail, of broker Hargreaves Lansdown, said the FCA is “sensitive” over the issue of DB transfers following questions around its "regulatory shortcomings" in this area.
He said: “On the DB transfers, they seem to be quite slow to act and there has been considerable disquiet across the industry for some time before we saw overt FCA intervention. They are all over it now, but there has been a worry that for some consumers the stable door might have been after the horses bolted.”
This follows a strengthening of the rules around DB pension transfer advice, as outlined in April 2019 as a key focus area to prioritise in 2020.
Last summer, the FCA announced plans to ban “contingent charging”, where advisers only get paid if a transfer is completed. This model has been criticised for creating too much incentive to advise in favour of a transfer. Details on the finalised rules surrounding the charging models that advisers use are set to be published in the first quarter of this year.
Steven Cameron, of pensions firm Aegon, said banning this model may not be the answer to resolving conflicts of interest, however. He said it could mean far fewer customers willing to seek advice knowing they would need to pay whether the transfer goes ahead or not.
He added: “We do support the FCA’s investigations, but we are concerned that the sheer extent of its scrutiny, coupled with the continual strengthening of the rules and problems in the professional indemnity insurance market, may mean there are far fewer advisers active in the DB transfer market. That’s a problem because consumers must get advice.”
The FCA is yet to respond to a request for comment.
Its letter to financial advisers also warned about consumers being targeted by pensions and investment scams.
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