Although the FCA cannot yet provide full 2018 data, the number of defined benefit pension transfers appears to still be on the increase.
Piecing together the various requests for information from the regulator, what is clear is there was a significant jump in the number of pension transfers between the 2016-17 tax year and 2017-18, where there were roughly 65,600 and 104,000 transfers, respectively.
What the headline figure will be in the 2018-19 tax year is anyone’s guess, but I can easily see it increasing again. This is clearly a concern for the FCA; it spent a lot of time last year trying to ensure the advice that members of DB schemes are receiving is both suitable and of good quality.
At the start of 2018, the watchdog published its expectations with regards to advising on pension transfers. This was particularly important because of the emphasis on the need to consider the investments into which the transfer would be made.
In some cases, advisers had been conducting pension transfers without consideration to the overall investment plan once the transfer had taken place. The FCA emphasised that generic assumptions should not be used, and made it clear this was a simple reiteration of its expectations: the rule should have already been part of the advice process.
In addition, the watchdog made it very clear that just using critical yield as a guide to the suitability of a pension transfer – as well as having a set rate that determines if a transfer is feasible – is unacceptable.
The document went on to detail other areas of concern, such as whose responsibility the advice is in circumstances where clients are shared between firms with pension transfer permissions and those without. This again referred to the need to provide advice on the underlying assets as part of the main transfer advice.
The other issue raised in the first communication of the year was that of insistent clients, who can cause advisers and providers a significant headache. Many providers do not want to deal with these clients because they believe that any complaint in future would fall on them.
Many advisers have their own concerns about insistent clients: first, because they feel strongly the advice they are giving is correct, and second because it can be difficult to find a provider to accept the transfer. The latter issue causes further problems, because the adviser is unlikely to be able to recommend their usual and trusted provider for the transfer, causing more work and requiring increased due diligence.
The next thing we saw in 2018 was the policy statement ‘PS18/6: Advising on pension transfers’, published in March and following on from a 2017 consultation. The biggest shock from this statement was confirmation the starting point for any advice should remain that a transfer is unsuitable. This has long been a point of debate and the consultation had suggested it be moved to a neutral starting point.