DB transfers falling as advice provision declines
On the go: The number of people transferring out of defined benefit pension schemes fell in the 18 months to the end of March 2020, according to new data from the Financial Conduct Authority.
Almost 87,500 clients took advice on DB transfers during the period, with 57 per cent recommended to transfer or convert their pension.
When considering pre-advice “triage” processes — used to filter out people for whom a transfer would be inappropriate — just more than 108,000 people considered transferring their DB pension, with 46 per cent recommended a transfer.
The value of benefits subject to advice totalled £30.3bn, with £20.2bn transferred, the FCA’s data showed.
When compared with previous transfer data from the regulator, the new information showed a fall in the proportion of clients that were recommended a transfer after taking advice.
Steve Webb, partner at LCP, said this trend was “welcome”, but warned that the transfer market remained an area of “real concern”. He highlighted a significant fall in the number of companies providing DB transfer advice.
In October 2018, the FCA recorded 3,042 companies as providing advice in this area, but by the start of January 2021 this figure had fallen to 1,521. LCP said the ban on contingent charging that came into force last year could see the number of advisers in this space fall further.
“The supply of advisers has fallen dramatically in recent years, and recent regulatory changes plus the cost of obtaining insurance is likely to reinforce this trend,” Sir Steve said.
“Members are likely to find it increasingly difficult to source high-quality impartial advice if left to their own devices. This data reinforces the case for pension schemes to appoint one or more high-quality advice firms to help members make good choices about pension transfers.”
The FCA’s data release also singled out companies that gave transfer advice to members of the British Steel Pension Scheme. The watchdog said 254 companies — 19 per cent of those currently active in the DB transfer market — provided more than 3,400 members with a recommendation to transfer out.
While it did not comment on suitability, the regulator said it would use the data to inform its “proactive supervision of firms involved in driving consumer harm”.
“We aim to follow-up with every firm that was materially involved in providing BSPS advice,” the FCA said. “As we have done to date, where we find that their advice may have been unsuitable, we will tell them to take appropriate, corrective action.
“Where we suspect serious misconduct has occurred, we will undertake enforcement investigations. We are currently undertaking approximately 30 investigations into firms and individuals where the principal focus is DB pension transfer advice.”