A two-year study has revealed that less than half of recommended pension transfers were deemed suitable
A new report by the Financial Conduct Authority (FCA) has raised serious concerns about the advice consumers are receiving when it comes to transferring their pensions.
Specifically, the FCA looked at Defined Benefit (DB) pension transfers ‘to assess the advice consumers are receiving from firms and whether they are at risk of harm,’ adding that the ‘number of consumers transferring from DB schemes to personal pensions has significantly grown over the past year.’
Indeed, so far this year around 80,000 pension transfers have been made from Defined Benefit (or final salary) pensions, which offer a steady and guaranteed inflation-proofed income, to so called Defined Contribution schemes.
The Defined Contribution option allows the consumer more control and flexibility in how they receive payments, which could be in a lump sum or smaller sums.
The FCA raised fears about such pension transfers back in January, stating: “We are aware that some firms have been advising on pension transfers or switches without considering the assets in which their client’s funds will be invested.
“We are concerned that consumers receiving this advice are at risk of transferring into unsuitable investments or – worse – being scammed.”
The most recent report, published earlier this month, revealed that the FCA reviewed 88 cases starting from October 2015 where an adviser had recommended a saver should transfer their pension.
Of those 88 cases, the FCA found:
- 47% were suitable
- 17% were unsuitable
- 36% where it was unclear if the recommendation was suitable
The results were potentially even more damaging when the FCA also considered the suitability of the recommended product and fund and found:
- 35% were suitable
- 24% were unsuitable
- 40% were unclear
The report concluded that ‘a large number of firms do not advise on DB transfers. In many cases, they introduce clients to firms who specialise in advising on pension transfers.
“Many of these specialist transfer firms obtain a large part of their business through these introductions.
“Some of these firms made transfer recommendations without considering a receiving scheme or investments or knowing the introducing adviser’s intentions for investment.
“This opened up the risk of consumers’ pension savings ending up in inappropriate or scam investments.”
Some industry commentators are anticipating a crackdown on pension transfers with new rules due to published later this year.