FCA’s response to transfer scandal too little, too late

Up until last month, the full scale of the Financial Conduct Authority’s worries about final salary pension transfer mis-selling were not publicly known. 

It took a freedom of information request to reveal that the regulator had written to 1,841 transfer advisers where it was concerned that their clients may have been wrongly persuaded to give up their valuable defined benefit pensions. 

Shockingly, this represented nearly 80 per cent of transfer advisers.

It is no wonder the regulator’s tepid response to the current pension transfer mis-selling scandal is raising concerns among some high-profile consumer campaigners, including a former board member of the FCA

The evidence now points to a systemic pension mis-selling scandal, which could be on a par with the £12bn personal pension scandal of the 1980s and 1990s, at least in terms of pound value.

Back then, more than 1m customers were wrongly persuaded to leave, or not join, their employer’s pension scheme, with the eventual bill for insurers and financial advisers reaching £11.8bn.

While the numbers potentially stung by the current pensions scandal will not be as high as three decades ago, the financial pain from today’s failure will be far deeper for many individuals subjected to bad advice, given average transfer values of £350,000.

Time for regulator to muscle up

Given the heavy toll a bad transfer decision can have on an individual, it is imperative the regulator acts swiftly, decisively and transparently to make sure consumers are aware of their right to complain and seek redress.

But justice for wronged consumers does not appear to be a priority for the watchdog, which is taking a softly-softly approach with companies suspected of providing bad advice.

The 1,800 or so firms it targeted with letters last year were chosen because of red flags identified with their businesses, such as very high transfer volumes, involvement with unauthorised introducers, or transferred pots being placed into expensive funds with high ongoing advice charges.

The FCA wrote to these companies, but it is not forcing them to alert their customers that the transfer advice they were provided, and likely paid thousands for, may have been unsuitable.

It has merely asked the firms to “consider” offering redress to customers affected.

It is also leaving it up to companies to decide what to say to customers potentially affected, on the basis it would not ordinarily dictate how firms communicate with their clients.

This position contrasts with the tough line taken by the regulator in 2012, when it set industry-wide standards on what companies selling payment protection insurance should say to customers potentially mis-sold the policies and entitled to redress.

It did this to ensure communications with affected customers were clear, fair and not misleading.

Consumers must not be left to fend for themselves

It is no wonder the regulator’s tepid response to the current pension transfer mis-selling scandal is raising concerns among some high-profile consumer campaigners, including a former board member of the FCA.

These concerns are exacerbated by the fact that the watchdog is keeping secret the names of the nearly 190 companies where it has acted on concerns about poor transfer advice, such as halting the firm’s activities or site visits.

The standard response from the regulator on why it is not taking a tougher line on pension transfers today is that individuals can always complain to their advice firm.

This is staggering. It is safe to say the majority of the 390,000 or so consumers who have transferred since 2015 would have little clue if their advice had fallen short, or that there is a time-limit of six years to complain.

Being kept in the dark about potential problems with a DB pension transfer is not satisfactory, given it is likely to be the biggest financial decision many will make. 

At the very minimum, companies where the regulator has intervened should be required to alert their customers to concerns raised, and remind them of their right to complain and seek redress.

The stakes are far higher today for those wrongly persuaded to transfer than they were for those mis-sold PPI, given the life-changing amounts of money involved.

The regulator has the choice to be proactive now on behalf of consumers, and in doing so prevent much more damage to individuals and the industry from this scandal dragging out as it did with PPI, which has been running for nearly 15 years.  

Already, many advisers have stopped offering transfer advice following huge hikes in their professional indemnity cover, as insurers jack up premiums due to mis-selling concerns. Customers considering a transfer are now struggling to find advice as companies pull back from the market, with those advisers doing the right thing by their customers suffering from reputational damage as the scandal drags on.

It is in the industry’s interests to get the watchdog to deal with its concerns as quickly and transparently as it can, as the shadow cast by an opaque and drawn out investigation will be long and expensive, both reputationally and financially.

Josephine Cumbo is pensions correspondent for the Financial Times