The UK’s Financial Conduct Authority (FCA) has released the results of the data it received from firms carrying out Defined Benefit (DB) transfers and has revealed its next steps in its supervisory work.
Defined Benefit pension transfers have been regulated in the UK by the FCA since 2013 and is monitoring the space to see where improvement opportunities lie. The organisation aims to improve consumer protection, protect and enhance the integrity of the UK’s financial system and promote effective competition in interests of consumers.
The FCA said it has made its expectations of financial advisers clear and has strengthened rules around the area; however, it is still not happy with a lot of advice.
It is concerned many firms are recommending large numbers of consumers to transfer out of their defined benefit pension schemes, despite the FCA’s stance transfers are not suitable for many of these.
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. Further to this, 234,951 scheme members received advice on transferring. Of those, 162,047 members had been recommended to transfer out and 72,904 had been recommended not to transfer.
In total, the value of DB pensions where transfer advice was provided was £82.8bn, with an average value of £352,303.
Additionally, 1,454 firms had recommended 75 per cent of more of their clients to transfer. An explanation for this high-volume of recommendations could be that a firm has a robust initial guidance service triaging its clients, the FCA said.
Finally, 1,346 firms reported data on the number of clients that did not proceed with its guidance. The total number of clients to not take action on advice was 59,086.
While this data is not an assessment of the suitability of advice, it will give the FCA the information needed to focus on its supervision work to drive the quality of advice.
The FCA has already begun visiting some firms, beginning with the most active in the market. These visits will allow the FCA to conduct full assessments of firms’ approaches to DB advice, focusing on the key aspects of firms’ business models and processes which could provide harm.
Following this, the FCA will write to all firms where the potential for harm has been identified in the data supplied. The document will offer the FCA’s expectations and actions the firm should take.
FCA executive director of supervision, wholesale and specialists Megan Butler 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 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.”
