Financial Services Compensation Scheme  

FSCS pension mis-selling payouts double

FSCS pension mis-selling payouts double

Compensation payouts to savers wrongly advised to transfer out of defined benefit pensions have doubled in the space of two years, according to figures from the Financial Services Compensation Scheme.

The data, first reported in FTAdviser's sister publication the Financial Times, showed pension mis-selling related payouts amounted to more than £40m in 2018, up from £37.5m in 2017 and £20m in 2016.

The spike in payouts coincided with a seven-fold rise in pension transfer activity in three years, from a total of £5.4bn in 2014 to £37bn in 2017, the FT reported.

Nick Smith, MP for Blaenau Gwent, who had requested the data from the FSCS, told the newspaper: "The fact that the compensation paid out in these cases has doubled to £40m in just two years, between 2016 and 2018, is absolutely shocking.

"Many people — including some of my constituents — ended up losing thousands of pounds of hard-earned money because of the poor advice they were given."

The number of DB transfers have soared since 2015, when the government's pension freedom reforms came into effect.

These gave savers in defined contribution pensions the right to access their funds in any way they like from age 55. But the freedoms were not extended to savers in DB schemes.

Savers wishing to convert their pensions were mandated to seek advice if the value of their pots is more then £30,000.

FTAdviser reported last year that some trustees were asking their members to get financial advice even if the pension was worth less than the mandatory limit.

The FSCS was not able to provide details on the number of firms, or complaints, underpinning the £40m in compensation because the information must be manually retrieved.

But the body told the FT it expects claims for bad pension transfer advice to continue to grow as claims management companies become more active.

Mark Neale, chief executive of the FSCS, said: "We see many examples of mis-selling as both regulated, but also increasingly unregulated advisers, promote risky, illiquid investments.

"We see providers who fail to perform rudimentary due diligence on these investments."

The regulator has already said it will not shy back from acting on advisers who are found to have given unsuitable advice to transfer.

In an interim report on its work on pension transfers the Financial Conduct Authority stated less than 50 per cent of the advice it had reviewed was suitable.

The FCA stated: "It is unacceptable that pension transfer advice should persistently remain at such a low level in comparison to investment advice.

"We expect firms to take prompt action on our findings and to check that their business model and advice processes do not exhibit similar failings."

Latest official figures showed transfer activity had cooled. According to the Office for National Statistics (ONS) transfer figures stood at £8.6bn at the end of September. 

In March monies moved from final salary plans to other pension schemes had hit a record of £10.5bn.