More than two-thirds (69 per cent) of defined benefit (DB) transfer advice resulted in a recommendation to transfer, according to data released by the Financial Conduct Authority (FCA).

The organisation said this proportion, observed between April 2015 and September 2018, was significantly higher than expected, given the FCA’s view that transferring is not in most consumers’ best interests.

The overall suitability of all advice was found to have risen from a low point of 47 per cent in previous years to 60 per cent in 2018.

However, the FCA said it remained concerned at the number of files which either appeared to be unsuitable or where there were information gaps.

Around 700 firms gave up their permission to provide pension transfer advice after involvement in the FCA’s industry-wide data collection from over 3,000 firms.

The regulator has also launched 30 enforcement investigations against firms that it believes gave unsuitable transfer advice.

Research found that only around 50 per cent of advice given by firms considered to be “potentially high-impact”, due to the high volume of advice they dispensed, was considered suitable.

Nearly 235,000 members were found to have taken advice from nearly 2,500 firms on a DB transfer between April 2015 and September 2018, on transfer values worth over £80bn in total.

Over 170,000 of them then transferred, including over 9,500 who transferred against advice.

The FCA added that it was common for those receiving advice to be met with high charges, and a fee of close to £10,000 for advice on an average transfer value is not unusual.

The FCA said: “We consider that the current situation is unsustainable. Too many consumers are being given unsuitable advice, resulting in too many of them transferring against their best interests. We pointed out that our thematic work showed that some advice firms were failing to demonstrate competence.”

While the FCA has taken this opportunity to move against contingent charging, the regulator also outlined plans to proceed with several other proposals.

FCA rules already require firms to explain why a scheme they recommend is suitable, but the body said its recent work suggested “many firms are not complying adequately with this requirement and often recommend overly complex and expensive solutions”.

The authority proposed that firms demonstrate why the scheme they recommend is more suitable than the default arrangement in an available workplace pension scheme, which “many respondents” agreed with despite concerns about how long it might take to gather enough information to analyse the workplace scheme.

The update also detailed changes to charging following support from “most respondents”, with the FCA pursuing proposals that would require firms to clearly set out charges before firms provide regulated advice on a transfer or conversion that requires a pension transfer specialist.

Other changes that the FCA continues to seek include the requirement for firms to ensure customers understand the risks to them of proceeding with a pension transfer or conversion before finalising the recommendation, as well as additional yearly training for pension transfer specialists.

The report stated: “In our view, given the advantages of DB pensions, the proportion of consumers that firms have advised to transfer appears too high. While a large proportion of the advice to transfer will have been suitable, our file reviews also show too many instances where transfers were not in consumers’ best interests.”

Barnett Waddingham partner, Simon Taylor, commented: “When it comes to pensions, we are expecting increased interest in transfers from scheme members, as the effects of Covid-19 on the economy become clearer and furlough schemes end. Some older employees who have the ability to transfer will be looking to their defined benefit deferred pensions as a way of accessing additional income.

“In order to do this, they need to take advice from a regulated adviser, but the number of advisers who can give this advice has plummeted, and will continue to do so in the face of increased regulation and professional indemnity insurance costs.

“In addition, as a direct result of Covid-19, we would expect to see more schemes impose statutory reductions to transfer values to reflect their worsening funding position and protect their overall finances.”

LCP partner, Steve Webb, said: “The current crisis could well lead to a surge in interest amongst the over 55s in accessing their DB pension. The need for affordable, high quality advice is likely to be greater than ever, and it is right to crack down on firms who have given poor quality advice.”

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