Personalised financial advice can only be provided by a financial advisor that is authorised and regulated by the Financial Conduct Authority. It is mandatory for scheme members with defined benefit (DB) pensions worth in excess of £30,000 to receive advice when making a transfer.
However there are concerns that there are rogue advisors that are not making the best recommendations for their customers on both the recommendation to transfer and the recommendation on the product to transfer to.
The experience of members of the British Steel Pension Scheme (BSPS), following the deal to save Tata Steel and restructure the pension scheme brought this to national attention. The case of the BSPS was not a typical situation. This was a golden opportunity for rogue advisers with the numbers of members seeking advice at that time outstripping the local capacity of advisers.
Articles in the Guardian and the Telegraph give a taste of the difficulties BSPS members faced dealing with rogue advisors.
However concerns about whether transfers out are in members’ interests and about the process underpinning transfers out persist:
(1) Critical report by MPs
In February 2018 MPs on the Commons Work and Pensions Select Committee called for urgent action because “another major miss-selling scandal is already erupting on defined benefit pension transfers”.
(2) Regulatory development
In January 2017, the Financial Conduct Authority issued an alert on advising on pension transfers because they were concerned that scheme members were at risk of transferring into unsuitable investments or even being scammed.
In March 2018 the Financial Conduct Authority announced that, in light of concerns about the significant proportion of unsuitable advice, they would still require advisors to “start from the assumption that a DB pension transfer will be unsuitable”.
In June 2020 the Financial Conduct Authority announced that it would ban contingent charging (where fees are only paid if transfers go ahead) in most circumstances from the 1st October 2020. In their consultation guidance they highlighted concern at the high levels of recommendations to transfer and unsuitable advice being provided to consumers.
These developments do not directly impact on the choices facing any individual. However, the concerns expressed by MPs, the regulator and others will hopefully emphasise the importance of a decision to cash in defined benefit pensions and the need to consider the issues very carefully.
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