Unsuitable transfers from defined benefit (DB) schemes could result in collective losses of up to £20bn over five years for consumers, the Financial Conduct Authority (FCA) has revealed.

The FCA’s Sector Views report said that consumers could lose a further £20bn collectively due to unsuitable product choices or investment strategies, which it stated could cause “significant consumer harm”.

The research also revealed that over three-quarters (76 per cent) of firms with DB transfer advice permission could be giving harmful advice.

Furthermore, the regulator said that more than 15 million savers in non-workplace pensions could be affected by “poor value products”, stating that the compound effect of high charges could see savers benefits reduced by more than £40bn over five years.

The report stated: “In non workplace pensions and retirement income products, consumers often face a choice between products with complex features and unclear charging structures.

"This makes it hard for even the most informed consumers to effectively assess value for money".

FCA confirmed plans to work with The Pensions Regulator (TPR) to enable Independent Governance Committees and trustees to develop a “systematic way to assess and drive value for money".

This latest report also follows the publishing of FCA's amended pension cost disclosure requirement plans, which were diluted following industry feedback.

The regulator emphasised the role of pension freedoms in prompting more savers to enter drawdown or make "complex investment decisions" about their pension, highlighting how “unsuitable non-workplace pension products can make effective comparisons harder".

Citing data from the Financial Ombudsman Service, the report also revealed a “sustained increase” in SIPP related complaints, with an 86 per cent increase in H2 2018 compared to H2 2017.

Within this, the regulator also pointed out the “comparatively high uphold rate” of 61 per cent, however it also emphasised the increase in the use of claims managers, with around two thirds of SIPPs complaints originating from third-parties.

Although complaints related to income drawdown products showed a 36 per cent year-on-year increase, they had a slightly lower uphold rate of 52 per cent, though the report acknowledged that this was from a “much lower starting volume”.

The report also highlighted that auto-enrolment contribution level rises had yet to impact opt-out rates.

However, it noted that a lack of confidence in the industry, caused by “high profile failures of defined benefit (DB) pension schemes”, had seen consumer confidence in the pension savings market undermined.

“This can lead consumers to opt out of pensions savings or to cash in their pension, even when it is not in their interest to do so,” the report emphasised.

In addition to this, the regulator has raised concerns over unregulated markets which are beyond the FCA’s “perimeter”, such as advisers to employers about workplace pensions and some third party service providers, describing these as a “potential source of significant consumer harm”.

Commenting on the findings, FCA executive director of strategy and competition and interim chief executive designate, Christopher Woolard, added: “We are committed to reducing harm in the markets we regulate.

“What is clearly apparent from the Sector Views, is that many of the harms we are seeing are created by a significant number of smaller firms we regulate or firms beyond our remit.

“The findings in the report will contribute to our upcoming business plan and the decisions we make affecting consumers, market integrity and competition.”

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