Consumers may not be receiving suitable pension transfer advice
It is estimated 80,000 Defined Benefit (DB) pensions have been transferred into personal pensions over the past year and given the growth, the Financial Conduct Authority (FCA) has looked at how advisory firms have adapted to meet consumers’ needs.
Advice is required for all transfers where the transfer value exceeds £30,000, but the FCA found that a large number of firms don’t advise on DB transfers. Instead, in many cases, they introduce clients to specialist firms.
The regulator reviewed 88 DB transfers where customers were recommended to transfer out and it found that less than half were suitable (47%), 17% were unsuitable and in 36% of cases it wasn’t clear if the recommendation was suitable.
It also looked at the suitability of the recommended product and fund, and found that 35% were suitable, 24% were unsuitable and 40% were unclear.
The FCA said firms must make sure that their personal recommendations are suitable for their clients. However, many firms had designed processes and procedures where it was difficult to assess suitability.
This included firms:
- Failing to obtain enough information about clients’ needs and personal circumstances
- Failing to consider the needs of the client alongside their objectives when making a recommendation
- Not making an adequate assessment of the risk a client is willing and able to take in relation to their pension benefits.
In some cases, advisers had failed to make appropriate comparisons between the defined benefit scheme and the intended receiving scheme. Therefore advice was based on incorrect or inaccurate comparisons.
‘Major choice so it’s vital consumers are supported’
Nathan Long, senior pension analyst at Hargreaves Lansdown, said: “The starting point for anyone with a DB pension should be to assume it is best left as it is. Transferring means giving up a promised income in return for the uncertainties of investing in the stock market. Transferring away could be investigated further if you are in poor health, are single or have concerns about the employer that provides your pension.”
Steve Webb, director of policy at Royal London, said: “The decision to give up rights in a final salary pension scheme is a major choice for individuals, and it is vital that they are supported by high quality, impartial financial advice.
“But the FCA has highlighted clear areas of concern, including the interaction between advisers and transfer specialists and the suitability of the product where the transferred money will be invested. It is vital that these warnings are heeded so that all adviser firms are adhering to the standards of the best.”
See YourMoney.com’s 10 things to consider before opting out of a Defined Benefit pension scheme for more information.