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.
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:
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:
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.