Posted on: 24th June 2019
According to the FCA, the number of defined benefit transfer recommendations is “deeply concerning”. The UK’s financial regulator plans to take further action to clamp down on poortransfer advice. It warned that too much advice on the market “is still not of an acceptable standard”.
On 19th June 2019, the Financial Conduct expressed concerns that advisers were still suggesting to their clients that they should move away from their defined benefitschemes. This advice has been given out despite the fact that transfers are likely to be unsuitable for most clients.
Under the current regulation, anyone who is looking to trade for a future defined benefit pension, which pays a secure income for life, for a cash lump sum today, must first seek advice from a qualified independent financial adviser if their pot is valued over £30,000. This is because the regulator believes that giving up such arrangements is not in the best interests of most people.
“We have said repeatedly that, when advising on DB transfers, advisers should start from the position that a transfer is not suitable. It is deeply concerning and disappointing to see that transfers are still being recommended at the levels we have seen,” said Megan Butler, executive director of supervision, wholesale and specialists at the FCA.
“Deciding whether to transfer out of a DB scheme is one of the most complex financial decisions a consumer may have to make and it is vital customers get high-quality advice. Our ambition is for pension transfer advice to reach the same standard as that of the rest of the financial advice market.”
According to an FCA survey, 1,450 out of 3,015 companies had recommended over 75 per cent of their clients to transfer between April 2015 and September 2018. This is in spite of the regulator’s opinion that more people would benefit from keeping their defined benefit pension, which pays a secure, index-linkedincome for life.
Over the period, 234,000 scheme members received transfer advice. 162,000 of those people transferring their pensions to a defined contribution arrangement that comes with more risk. The total value of DB pensions that were brought from transfer advice came to around £83 billion.
The watchdog said it had begun paying visits to firms to complete assessments of their approach to defined benefit advice. It also said it would be writing to all companies where a “potential for harm” had been identified.
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