An FCA thematic review into bulk pension transfers from defined benefit to defined contribution schemes has identified poor advice in a third of cases.
The regulator looked at 300 cases from bulk transfer advice exercises between 2008 and 2012 where savers were offered enhanced transfer values to incentivise them to leave their employers’ DB scheme.
The FCA says there is a risk of consumers losing out on retirement income after advice was found to be unsuitable in a third of cases.
In the coming weeks the FCA will follow up its concerns with individual advice firms and ask them to contact members and offer redress where appropriate.
FCA director of supervision Clive Adamson says: “Transferring from a DB scheme to a DC scheme is an important decision for consumers. It is disappointing that our review saw failings in the advice given, particularly when incentives have been provided to consumers to transfer.
“All firms active in this complex area of pension transfer activity should think very carefully about the quality of the advice process and assurance framework required to deliver fair customer outcomes.”
Employers offering enhancements typically offer an increase in the pension transfer value. In the period covered by the review, the incentive may also have included a cash payment.
Examples of poor practice identified by the review include:
- Generic templates which were inadequately tailored to reflect specific member circumstances
- Advice where the outcome focused solely on critical yield analysis
- Failure to establish adequately the level of risk a member is willing and able to take
- Fund recommendations which did not match the risk profile of the member
- The use of default receiving schemes, in some cases with uncompetitive charging structures
- Limited consideration of the tax and means-tested benefit implications of accepting the offer.
The FCA says that, given the pension reforms taking effect from next April and the Government’s decision not to ban transfers from DB to DC schemes, there is currently a “heightened risk” of unsuitable transfers.