FCA announces further action on defined benefit transfers

25 July 2019



On 19 June 2019, the FCA provided an update analysing advice on defined benefit pension transfers since pension freedoms began in 2015.

Rather than assessing the quality of advice given, the update focuses on the number of scheme members who’ve received advice and the proportion of those recommended to transfer.

The headline numbers 

Between April 2015 and September 2018:

  • 2,426 firms provided advice on transferring DB pensions.
  • 234,951 scheme members received advice on transferring. After this advice, 162,047 (69%) members were recommended to transfer out and 72,904 (31%) were recommended not to transfer.
  • 1,454 firms have recommended 75% or more of their clients to transfer.

Megan Butler, Executive Director of Supervision, Wholesale and Specialists at the FCA said:

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.

Of course, high level numbers like these can miss some of the detail. For example 1,346 firms reported data on the total number of clients who hadn’t proceeded past the firm’s initial guidance (known as triage). The total number of clients reported as not proceeding to advice was 59,086. When these triaged clients are factored in, 55% of clients were recommended to transfer.

While it’s unlikely the FCA has a specific figure in mind as an acceptable conversion of enquiry to transfer, reiteration of the starting position of transfers being unsuitable for most people implies it’s somewhere south of 50%. 

Before we criticise the whole industry, or even just the 2,426 firms advising in this market, let’s bear a few crucial points in mind:

  • The data collected only goes up to September 2018. The FCA has been more proactive in engaging the industry in recent times; particularly post British Steel, but much of this wouldn’t have influenced these figures. The FCA published two policy statements on pension transfer advice in 2018. One in March and one in October. Given the length of time from initial enquiry to completed pension transfer is often three to six months, it’s difficult to see how the messages from the March policy statement, let alone October, would have made its way into these findings.
  • Of the 171,581 clients who were recommended to transfer or who transferred as insistent clients, 120,735 (70%) signed up to ongoing advice from the firm recommending the transfer. This will go a considerable way to preventing the worst outcomes for many of these members.
  • Let’s also remember, no one has said any of this advice is unsuitable or unclear. No doubt some of it will be, especially given the last figures we saw on suitability in December 2018 had the suitability rating at less than 50%. However, that’s crucial information we don’t have as yet.
  • The industry is taking this very seriously, as evidenced by the creation and significant uptake of the Pensions Advice Gold Standard from the PFS. Over 600 advice firms signed up to this in the first two months post launch in April 2019.
  • Only 6% of firms reported accepting introductions from unauthorised introducers resulting in only 4,066 transfers. While any poor outcome for a customer is one too many, it’s good to know the use of unauthorised introducers is far less widespread than was feared.

The update tells us 2019 and 2020 hold the promise of further analysis of the data and more detail on the suitability of advice given. From the data already collected, the FCA has identified firms where it believes the risk of poor practice is highest, leading to further investigation and firm visits.

Our view

As an industry, we should welcome this increased effort to root out those firms falling short of the advice standard expected in this market. The sooner this happens, the better - for both customers and the vast majority of advisers trying to do the right thing and enhance the reputation of financial advice.


About the author

Justin Corliss

Senior Pensions Development and Technical manager

Justin’s first foray into Financial Services was in Australia in 1997 with Commonwealth Bank of Australia working predominately in retail mortgage lending. In 2002 Justin and his British wife moved to Scotland where he worked in broker consultant roles with both Scottish Widows and Scottish Life before spending a brief period as an Employee Benefits Consultant dealing predominately with Auto Enrolment and associated business consultancy. Justin is involved in developing adviser facing content, presenting, writing articles and commenting for the press. Justin has studied continuously since arriving on these sunny shores and holds the Advanced Diploma in Financial Planning including the CeMap and Lifetime Mortgage qualifications. His primary focus is pension planning and he holds the AF3 & AF7 qualifications. A huge sports fan, Justin will happily discuss the merits of the Australian cricket team for hours on end.

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