The FCA is concerned that 76% of firms with defined benefit (DB) transfer advice permission in the market are providing potentially harmful advice to pension scheme members, according to a Freedom of Information (FOI) request submitted by Buck.

Buck, a firm specialising in pensions and employee benefits, revealed that as part of its ongoing supervisory programme on DB pension transfer advice, the FCA had carried out market-wide research in 2019.

Due to concerns raised in this research, the FCA confirmed in the FOI that it would write to 1,841 of the 2,426 advisory firms in the market whose DB pension transfer advice was examined – to set out its expectations and the actions that these firms should take.

Buck revealed the FCA’s investigation had found that 69% of members who asked for DB pensions advice had been recommended to transfer out of their DB pension schemes – a proportion the FCA considered higher than optimal for scheme members.

Buck principal and senior consulting actuary, Mark van den Berghen, commented: “This latest information from the FCA is alarming and should worry all involved – providers, advisers, and scheme members. If the FCA fears that the majority of firms advising on DB transfers are giving potentially harmful advice, there are some serious questions to be asked of the industry.

“There are independent financial advisers in the market who work to extremely high standards and invest a lot of time and money into ensuring their advice is both suitable and compliant, with the clients’ best interests at heart.”

Buck’s FOI request also found that scheme members were more likely to be advised to transfer out of their DB schemes when they went to firms with fewer pension transfer specialists (PTS). Of the 1,454 firms that advised 75% or more of their clients to transfer, Buck revealed 55% had just one PTS employed.

Furthermore, at these firms where there was just one PTS, 74% of members who asked for advice were recommended a transfer, which Buck suggested showed the current system could be producing outcomes that were unlikely to be in the best interests of the majority of scheme members.

“There are also firms offering advice which results in poor outcomes for scheme members,” van den Berghen continued.

“The FCA has taken note of this and is working on behalf of scheme members. The fact that the FCA may ban contingent charging for DB schemes altogether is a sign of how serious the concerns are about the current process. Whatever solution the FCA adopts, we hope that it will improve the quality of advice being offered to scheme members.”

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