Defined Benefit  

Pension transfer activity to cool after FCA work

Pension transfer activity to cool after FCA work

Pension transfers are expected to slow down in 2019 due to a market probe launched by the Financial Conduct Authority (FCA), according to Selectapension’s Peter Bradshaw.

The director at the investment and planning software firm told FTAdviser a slowdown would be the "likely effect" of the recent data submission request from the regulator from firms with pension transfer advice permissions.

He said: "The FCA recently requested data from all firms with permissions to advise on defined benefit pension transfers, which they believe will provide a 'complete picture' of the whole market since 2015.

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"They are striving to achieve a target of over 90 per cent of cases they review being deemed suitable.

"The likely effect of this will be to slow down the number of transfer cases next year."

Earlier this month the watchdog released an interim report on its findings, saying it was "very concerned" that too many firms were still not providing suitable advice on pension transfers, after finding less than 50 per cent of the advice it had reviewed was suitable.

The regulator stated: "Any firm that is active in this market can expect to be involved in our work in 2019. We will not hesitate to use our investigatory powers where we identify evidence of serious misconduct which could have caused harm to consumers."

FTAdviser reported in September that several players in the pension market were already reporting a slowdown in this market, as bad publicity and an added level of scrutiny from financial advisers started to take effect.

Meanwhile, Sir Steve Webb, former pensions minister and director of policy at Royal London, has warned a decrease in professional indemnity (PI) insurance coverage could be an unwanted consequence of this data gathering exercise.

He said: "A big fear is whether firms will continue to be able to access affordable PI insurance and the threatened rise in the limit for Financial Ombudsman Service compensation already presents a big challenge in this regard.

"If the FCA data review finds evidence of significant problems in DB transfer advice, the number of insurers willing to cover this type of advice work could shrink even further."

The FCA proposed increasing the Financial Ombudsman Service's compensation limit from £150,000 to £350,000 in October, as part of the regulator’s plans to expand the ombudsman's services to small and medium enterprises (SMEs).

Meanwhile FTAdviser reported in July that advisers performing a high volume of DB pension transfers were having their level of PI insurance coverage reduced to £500,000, as insurers are wary of the risks involved in this type of business.

Previously, they would have had the full limit of PI insurance cover without any restrictions, of £1.75m.

The situation is also believed to be leading more firms to consider phoenixing, due to fears about future liabilities arising from DB pension transfers, as well as their insurer's examination of past business written.