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Regulator is right to be concerned over DB transfer rush

 

The regulator is right to be concerned about the rising numbers of defined benefit (DB) transfers, financial experts have warned.

The main reason for regulatory concern "is the sheer volume" of transfers being done post-pension freedoms, Keith Richards, chief executive of the Personal Finance Society, said.

"It feels naive to say it is a surprise, when pension freedoms were rushed in and the then Chancellor said [in 2014] 'nobody will have to buy an annuity again', that the public has responded in such a way.

"Coupled with this is the fact defined benefit transfer values are enhanced at the present time, given the state of the market, and it seems some schemes are trying induce people to transfer out of the scheme.

"This does of course raise the problem of insistent clients, where people decide they want to get hold of this large sum of money, without any consideration of what it is they are giving up."

Mr Richards said it was therefore natural for the FCA to focus on regulated activities, and whether advisers are doing what they have been mandated to do within the government regulation on DB transfers. 

"Professionals should not be facilitating poor outcomes", Mr Richards added. "It is really clear that if a transfer is not in the best interests of a client, then an advice firm should not be doing it.

"And a waiver document just does not wash - it poses risks for the reputation of the whole industry in the long term." 

Some 80,000 pension transfers have been made since last year, and enforcement action by the FCA has started to take place in the light of the high volume of defined benefit transfers.

James Dingwall, chief executive of Thistle Initiatives, said the FCA has "shown significant enforcement" over the past few months.

"Some firms have not been following the basic rules. It is only a small amount of advisers, but as transfers can be a significant revenue-earner for some firms, this can distort client outcomes.

"But clients must understand the risks of the options available and the consequences of the options available, and it is the good financial planner who will really talk through this with their clients to ensure the client gets the best outcome."

Mr Richards said although pension freedoms have created this environment, in which DB transfers have burgeoned, the FCA was specifically looking to see whether a transfer simply provided "the best outcome in the best interests of the client".

He added: "The FCA wants to see firms can clearly demonstrate they have acted on the individual needs of their individual clients."

simoney.kyriakou@ft.com

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