FCA targets ‘unsuitable’ advice on DB pension transfers
The UK’s Financial Conduct Authority has set out plans to tackle unsuitable advice given to those considering transferring out of a defined benefit pension scheme.
The watchdog’s next steps include a ban on “contingent charging”, which means that financial advisers are paid only if a transfer goes ahead – creating a potential conflict of interest.
In cases where there are ongoing conflicts of interest, advisers will be compelled to consider an available workplace pension as a receiving scheme for a transfer and, if they recommend an alternative solution, demonstrate why that alternative is more suitable.
The FCA has been reviewing financial advice firms’ files ever since consumers were first allowed to make decisions on moving their pension between schemes in 2015. It found that the amount of unsuitable advice being given out was “unacceptably high”.
It found that “suitable” advice was given in 60 per cent of cases in 2018, a figure which has been as low as 47 per cent in previous years.
Christopher Woolard, interim chief executive of the FCA, says: “The proportion of customers who have been advised to transfer out of their DB pension is unacceptably high. While much of the advice we looked at was suitable, we are still finding too many cases in which transfers were not in the customer’s best interests.”
One example the FCA highlights is British Steel Pension Scheme, whose members were given suitable advice in only 21 per cent of 192 cases it reviewed. Unsuitable advice was given 47 per cent of the time, and 32 per cent of advice contained information gaps.
The watchdog has launched investigations into 30 firms who have advised on defined benefit pension transfers.
“What we have set out today builds on the work we have been doing and reflects our determination to improve standards in this market. Customers need to have confidence that the advice they are receiving is right for them. The steps we are announcing today will drive up standards,” says Woolard.
The Association of British Insurers, an industry body, has backed the FCA’s plans.
“The ban on contingent charging is welcome and what we called for. It is the right thing to do. We welcome that exclusions are made for customers facing a shortened life expectancy or serious financial hardship,” says Hugh Savill, director of Conduct and Regulation at the Association of British Insurers.
“Some vulnerable customers who may benefit from a transfer and cannot afford financial advice up front may find the contingent charging model works best for them. In certain circumstances, transferring to a Defined Contribution scheme may be appropriate.”
The FCA has also produced an 'advice checker' with information about what advice they should have received about their pension transfer.