Watchdog rebuked for inaction on poor pensions advice
The UK’s financial regulator has come under fresh pressure from MPs for taking little action after warning that too much advice on pension transfers was still “not of an acceptable standard”.
The Financial Conduct Authority has been probing the defined benefit pensions transfer market since 2015, when big changes to pension rules led to a boom in savers seeking to transfer their future retirement income for an immediate cash lump sum. Around £82bn of DB pension pots, which pay a secure income for life, have received transfer advice since 2015, according to the regulator.
The FCA on Wednesday said it was concerned that advisers were still recommending to large numbers of savers that they should move out of their DB pension schemes, despite the regulator’s position that such transfers are likely to be unsuitable for most clients. Under current regulations, anyone with a pension pot valued at more than £30,000 who is looking to trade a future DB pension for a cash lump sum is required first to obtain advice from a qualified independent professional.
“We have said repeatedly that, when advising on DB transfers, advisers should start from the position that a transfer is not suitable,” said Megan Butler, executive director of supervision, wholesale and specialists at the FCA.
“It is deeply concerning and disappointing to see that transfers are still being recommended at the levels we have seen.”
The FCA surveyed 3,015 companies involved in the DB transfer market who had advised 234,951 clients on transferring between April 2015 and September 2018. Around 70 per cent of these clients went on to transfer their pension.
According to the FCA’s survey, 1,454 firms had recommended 75 per cent or more of their clients to transfer.
Frank Field MP, chair of House of Commons work and pensions select committee, said on behalf of the committee: “Today the FCA tells itself, again, that only about half of DB pension transfer advice meets its own standards”
“The alarm is ringing, people are still losing their life savings: It’s time to wake up. More of the same kind of regulation just won’t cut it.”
The FCA did not assess in this review whether the transfer recommendations were suitable. But last year the FCA reported that less than half of the DB pension transfer advice it had reviewed was appropriate for the customer. On Wednesday the FCA said it had begun visiting firms to complete assessments of their approach to defined benefit advice. It added that it would be writing to all companies where it had identified a “potential for harm”.
The FCA did not disclose whether it was considering enforcement action against firms for poor pension transfer advice.Myles McCormick and Josephine Cumbo, Financial Times