The Financial Conduct Authority’s (FCA) acknowledgement of the limitations of its data on defined benefit pension transfers has been welcomed by the Personal Finance Society.

Publishing its annual report for 2018/19 last week, the FCA noted that the data is based on the most active firms and is therefore “not representative of the whole market”. However, it reiterated that it is still disappointed to have found that only around half of the advice it reviewed was suitable.

“We are particularly concerned that, despite our feedback to the sector, some firms still do not give consistently suitable advice. We expect all firms to take prompt action to review their approach to pension transfer advice to ensure that it is not resulting in harm to customers. We have recently received data from every firm that advises on defined benefit pension transfers. This has given us a complete picture of the market from 2015 to date. We will conduct a wide-ranging programme of activity with firms,” the report said.

In its analysis of pension transfers from DB schemes, the FCA found that, of the 234,951 members that received advice between 2015 and 2018, 162,047 (69 per cent) had been recommended to transfer out, while the remaining 72,904 (31 per cent) had been recommended not to transfer.

As a result, the FCA told “every active firm in the market” to expect to hear from the regulator in 2019 as “too much advice is not of an acceptable standard”.

Commenting, PFS chief executive Keith Richards, said data obtained from a member firm, however, was in stark contrast to the FCA’s recent findings. He said the data from the advice business, which is appointed by trustees and employers to deliver retirement advice but wished to remain anonymous, showed there were clear limitations in the FCA’s data being used to sum up what is going on in the wider market due to a lack of context.

In contrast to the FCA, the advice business found that of the 4,959 members it is aware of receiving advice to transfer out, 1,002 (20 per cent) were advised to transfer out, and 3,957 (80 per cent) were advised to remain in the scheme.

“We welcome the FCA’s acknowledgement that their figures on the suitability of pension transfer advice is not based on an actual review of suitability and is equally not representative of professional advice more broadly. Specific to DB transfers however, the data shared with me by an advice business which was one of the first to sign up to the Pension Transfer Gold Standard, paints a far less alarming picture,” Richards said.

He highlighted that there is no context around age with the FCA’s data.

“Savers make different choices the closer they are to retirement, simply because retirement is now real to these individuals rather than some distant, far-off event. Many individuals approaching retirement are looking at immediate and material shortfalls of income. They consider the use of all assets, including their homes, to enjoy retirement while they are still in good health. The FCA data doesn’t reveal the use of other assets.

“There is also no context with the data about the professions or sectors of those seeking advice. Different firms I have spoken with can explain how the behaviour of people in different sectors or professions differ significantly.

“We are encouraged that the FCA has acknowledged the concerns raised of potential disproportionate reporting and has agreed to share learning outcomes from their supervisory work that we will build into our programme of CPD and good practice.

“Professional advice was put in place to protect consumer interests, but not to stop people from exercising their right to transfer, even if against professional advice.”

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