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Savers receiving unsuitable pension advice, says FCA

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The city regulator has said it is ‘deeply concerning and disappointing’ that most savers who seek advice about transferring their final salary pensions are told to ditch them.

More than two thirds of savers are told by advisers to transfer out of their final salary or defined benefit (DB) pension schemes, according to the Financial Conduct Authority (FCA), despite its stance that transfers are likely to be unsuitable for most clients.

Megan Butler, executive director of supervision, wholesale and specialists at the FCA said: “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.”

The FCA surveyed 3,015 financial advice firms and found that between April 2015 and September 2018, 2,426 firms had provided advice on transferring their DB pension.

Of the 234,951 scheme members who received advice on transferring, 162,047 were told to transfer out.

The total value of DB pensions where transfer advice has been provided was £82.8bn, with an average value of £352,303.

The FCA has already started visiting firms to assess their approach to DB advice. It will also be writing to all firms where the potential for harm has been identified.

Bumper transfer values

Bumper pension scheme transfer values have encouraged thousands of savers to trade in their valuable final salary pensions in recent years.

Pension transfer values are determined by the prevailing government bond yield, as well as length of service, final salary and the scheme itself.

Advice is required for all transfers where the transfer value exceeds £30,000.

But the FCA said today that much of this advice “is still not of an acceptable standard”.

Tom Selby, senior analyst at AJ Bell, said: “Advisers who have recommended DB transfers to clients are firmly in the FCA’s cross hairs and can expect further scrutiny over the coming year. While preventing consumer harm must remain the regulator’s central priority, it should be careful not throw the baby out with the bathwater.

“Clearly putting a stop to inappropriate advice is front-and-centre for the regulator, but in pursuing this aim the FCA needs to be mindful of the impact any action could have on the supply of advice and the ability of people to transfer where it is in their interests. Whether to transfer out of a DB pension is a complex decision based on a number of factors specific to the individual involved and advisers are best placed to make that assessment.”

Elsewhere, Steven Cameron, pensions director at Aegon UK, said transferring could well be the right outcome for many of the DB scheme members who have got to the point of paying for advice.

He said: “The people who actually sit down with an adviser don’t represent members generally. Many who do seek advice will have personal circumstances that make defined contribution pensions more attractive such as not having a partner, being in poor health or having a strong desire for flexibility.”

He added: “Advisers also aim to screen out those unlikely to benefit from transferring through a triage process, rather than incurring the time and cost of proceeding to full advice. The FCA does point to both these factors in its fuller report and this may explain why the percentage of cases where the recommendation is to transfer look higher than would be the case for the whole population of DB scheme members. The key will be to look at the actual advice given to determine its suitability and the FCA has plans to do so later this year.”

For more see: Five reasons to transfer your DB pension (and five not to)


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