The FCA are looking at Defined Benefit (DB) Pension Transfers to assess the advice consumers are receiving from firms and whether they are at risk of harm. |
The number of consumers transferring from DB schemes to personal pensions has significantly grown over the past year. We are looking at how advisory firms have adapted their business models and processes in response to these changes in the market. We have also focussed on the risk of harm to consumers leaving their DB schemes. We found that some firms are not giving enough attention to customer outcomes when changing their business models, in the wake of the pension reforms. These initial findings support observations in our Sector Views 2017.
Early work We have also continued our work on scams, particularly those that target consumers’ pensions. Since the start of 2016, 32 firms have chosen to stop providing advice or have decided to limit their pension transfer activity.
Summary of key findings A large number of firms do not advise on DB transfers. In many cases, they introduce clients to firms who specialise in advising on pension transfers. Many of these specialist transfer firms obtain a large part of their business through these introductions. Some of these firms made transfer recommendations without considering a receiving scheme or investments, or knowing the introducing adviser’s intentions for investment. This opened up the risk of consumers’ pension savings ending up in inappropriate or scam investments. The risks The general risks associated with firms accepting introductions were set out in our alert in August 2016. Some firms have not taken this alert on board: In some cases there was a lack of information sharing between the introducing firm and the specialist transfer firm. This resulted in unsuitable advice where the specialist firm did not have enough information about the client’s objectives, needs, and personal circumstances. We do not expect the specialist transfer firm to duplicate advice or make recommendations when an introducer is providing the regulated advice on investments. But we do expect them both to share information on the destination of the funds. We found firms where the adviser or transfer specialist made a recommendation without knowing where the transfer proceeds would ultimately be invested. In some cases the specialist transfer firm did not make a recommendation for a receiving scheme or investments. This was on the understanding that the introducing adviser would make a recommendation after the transfer had concluded. In these cases the advisers had not checked what the introducing adviser’s intentions were and could not take into account where the proceeds would be invested. Also we could not see how the specialist transfer firm could produce accurate comparisons between the DB scheme and the receiving scheme. The potential income in retirement in the ceding scheme will be affected by product and fund charges, and the likely returns. The client would not be able to make a fully informed decision without a comparison which took all of this into account. At some firms the transfer analysis was routinely based on ‘default’ schemes and/or funds, in the knowledge that these would not be the actual receiving schemes. We set out our concerns about such practices in an alert in January 2017. We were disappointed that while firms were generally aware of the alert, not all of them had taken effective action. Many of these firms had seen a significant growth in DB transfer business. However, they hadn’t made sure that there were enough specialist transfer or compliance resources to deal with the increased number of referrals appropriately. Firms expressed to us the difficulty of processing cases within three months of the transfer offer. However, in several cases inadequate resources were a significant factor in this. Suitability of advice Our focus above is on risks associated with specialist pension transfer firms. However, we had concerns regarding the suitability of the advice provided by the firms who we assessed, not all of whom were specialist pension transfer firms. Since October 2015 we have reviewed a total of 88 DB transfers where the recommendation was to transfer. Out of these, we found that:
47% were suitable
35% were suitable Firms must make sure that their personal recommendations are suitable for their clients. However, many firms had designed processes and procedures which result in transfers where the suitability of advice could not be established by the firm. This included firms:
Failing to obtain enough information about clients’ needs and personal circumstances. Next steps Recently, we consulted on changes to our rules and guidance on pension transfer advice. The intention is to clarify our expectations going forward, following the changes in the transfer market. Our consultation paper Advising on Pension Transfers further explains the issues affecting the suitability of DB transfer advice. The findings from our supervisory work have informed the proposals set out in the consultation paper. These will be taken into account when we respond to consultation. We will continue to monitor this market and, where appropriate, to assess firms who provide advice on DB transfers. We intend to carry out a further phase of supervisory assessments starting in the current business year. We expect firms to consider our previous alerts, and this update, and to take appropriate steps to comply with the relevant requirements. |
|
|
|
Pensions Data Science Actuary | ||
Offices UK wide, hybrid working - Negotiable |
Head of Pricing | ||
London - Negotiable |
Global Specialty Pricing Actuary | ||
London - £95,000 Per Annum |
Client-facing DC investment manager | ||
London / hybrid 3 dpw office-based - Negotiable |
Financial Risk Leader - Bermuda | ||
Bermuda - Negotiable |
Aylesbury Actuaries | ||
Aylesbury / hybrid 3dpw office-based - Negotiable |
Make an impact in protection pricing ... | ||
London / hybrid 2 days p/w office-based - Negotiable |
BPA Implementation Manager | ||
North / hybrid 50/50 - Negotiable |
Head of Reserving | ||
London - £160,000 Per Annum |
In-force Longevity Actuarial Analyst | ||
London / hybrid 2 dpw office-based - Negotiable |
Make a difference within reinsurance ... | ||
London / hybrid 2 dpw office-based - Negotiable |
Be at the cutting-edge of life & heal... | ||
London / hybrid 2 dpw office-based - Negotiable |
Longevity Pricing Analyst | ||
London / hybrid 2 dpw office-based - Negotiable |
Develop your career in life reinsuran... | ||
London / hybrid 2 dpw office-based - Negotiable |
Protection Pricing Actuary - Life Rei... | ||
London / hybrid 2 dpw office-based - Negotiable |
Life (Re)insurance Pricing Manager (P... | ||
London / hybrid 2 dpw office-based - Negotiable |
Take the lead: life & health reinsura... | ||
London / hybrid 2 dpw office-based - Negotiable |
Pricing Tools and Systems Developer | ||
London / hybrid 2 dpw office-based - Negotiable |
Longevity Pricing Actuary | ||
London / hybrid 2 dpw office-based - Negotiable |
Shape the future of longevity | ||
London / hybrid 2 dpw office-based - Negotiable |
Be the first to contribute to our definitive actuarial reference forum. Built by actuaries for actuaries.