Retirement savers taking advice about switching out of a final salary pension have a 50% chance of receiving suitable advice, according to financial watchdogs.
After a two-year probe that has included analysis of 88 transfers out of direct benefit pensions, the Financial Conduct Authority revealed only 47% of consumers received suitable advice.
Out of the rest, 17% picked up unsuitable advice and the result was unclear in 36% of cases.
The investigation also looked at the suitability of involvement advice in the new fund after the transfer and found only 35% of recommendations were suitable.
The rest were split between unsuitable (24%) and unclear (40%).
Standard lower than expected
“The proportion of suitable cases was much lower than we found in the wider advisory market for pensions advice, for example, our Assessing Suitability Review found that 90% of pensions accumulation advice, and 91% of retirement income advice, was suitable,” said the FCA report
“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.”
The FCA explained this included firms:
- Failing to find out about client needs and personal circumstances.
- Failing to consider client needs alongside their financial objectives when making a recommendation.
- Not making an adequate assessment of the risk a client is willing to take relating to their pension benefits.
Firms stopped giving advice
“In some cases, advisers had failed to make appropriate comparisons between the defined benefit scheme and the intended receiving scheme. Therefore, advice was based on incorrect or inaccurate comparisons,” said the report.
Following the inquiries, the FCA has pledged to continue monitoring the market in advance of changes to rules and guidance on pension transfer advice.
“Over the last two years we have requested detailed information from 22 firms on their DB transfer business. Following analysis of this information we reviewed a sample of client files for 13 firms, and visited 12 firms. Because of our assessments, four firms have chosen to stop advising on direct benefit transfers,” said the FCA.
“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.”
