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FCA update on pensions transfers

The Financial Conduct Authority (FCA) has published an update on its continuing work reviewing pensions transfers. The update focuses on the advice that consumers are receiving before transferring out of Defined Benefit (DB) pensions.


The update builds on the FCA’s consultation "Advising on Pension Transfers" (CP17/16), which further explains the issues affecting the suitability of DB transfer advice.

The FCA's work in this area is considered necessary given new trends in the pension transfer advice market since the introduction of pension freedoms in April 2015. Of particular concern is the risk of harm to consumers who are being advised to transfer out of DB schemes to riskier or less suitable funds. In turn, this may lead to increased scope for mis-selling and negligent advice claims.

Following CP17/16, the FCA has proposed new rules on pension transfer advice which make it clear that such advice must be provided in line with the FCA's existing rules on suitability.

Key findings

The most recent update reports on information provided to the FCA by 22 firms engaged in DB transfer business over the last two years. The FCA also reviewed a sample of client files at 13 firms, finding:

  • Many firms do not directly advise on pension transfers but introduce clients to specialist firms who do provide DB pension transfer advice;
  • Some firms did not gather enough information from introducers about clients' objectives, needs, and personal circumstances. This may lead to unsuitable advice;
  • Some firms made transfer recommendations without properly considering where the funds would ultimately be invested. This increased the risk of consumers’ pension funds ending up in unsuitable investments;
  • It was unclear whether specialist transfer firms could produce accurate comparisons (including product and fund charges and likely returns) between the DB scheme and the scheme to be transferred into. Customers can not make a fully informed decision without such a comparison;
  • Many firms have failed to properly assess risks associated with introductions;
  • Firms have not adequately taken into consideration the FCA's expectations in providing transfer advice;
  • Many firms had insufficient compliance procedures and resources to enable them to deal with referrals appropriately.

Continued focus on suitability of advice

The FCA has reiterated that firms must make sure that the personal recommendations they make are suitable for customers. However, many firms had processes and procedures in place which resulted in transfers where the suitability of advice could not be established by the firm.

Failings identified by the FCA included:

  • Failing to obtain enough information about clients’ needs and personal circumstances;
  • Failing to consider the needs of the client alongside the client’s objectives when making a recommendation;
  • Not making an adequate assessment of the risks a client is willing and able to take in relation to their pension benefits;
  • Basing advice on incorrect or inaccurate comparisons.

What does this mean for firms?

The FCA's findings suggest that firms have more to do in ensuring they have robust procedures in place to minimise the risks of claims relating to unsuitable pensions transfer advice. 

The FCA will continue to monitor the pensions transfer market and if necessary assess firms who provide advice on DB transfers. The FCA will carry out a further phase of supervisory assessments in the near future and have made it clear that they expect firms to take appropriate steps to comply with the relevant requirements.

TLT has expertise in this area and significant experience in assisting firms with reviewing their procedures as well as dealing with any complaints or claims that may arise.

This publication is intended for general guidance and represents our understanding of the relevant law and practice as at October 2017. Specific advice should be sought for specific cases. For more information see our terms & conditions.

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