Defined Benefit  

FCA tells providers to act on pension transfers

FCA tells providers to act on pension transfers

The Financial Conduct Authority has asked product providers to act if they discover advisers do not have the relevant permissions to advise on pension transfers.

In a dear CEO letter published on its website today (March 22) Debbie Gupta, director at the FCA, said providers largely used manual processes to check whether advisers they have worked with in the past still have the correct permissions for pension transfers.

If a provider discovers an adviser's permissions have been changed or removed during a retrospective review, Ms Gupta said she expects providers to act accordingly. 

The letter was published as part of the regulator's work evaluating the risks involved in the transfer of funds from defined benefit schemes to defined contribution products, which also included a review of advice.

In December the FCA said it was "very concerned" about pension transfers after finding less than 50 per cent of the advice it had reviewed was suitable.

The regulator had looked at 18 firms, which had given advice to 48,248 clients on their defined benefit pension schemes resulting in 24,919 actual pension transfers, since April 2015.

The regulator said whilst its results were based on targeted work and therefore not whole of market representative, it was particularly concerned firms were still failing to give "consistently suitable" advice despite previous feedback to the sector.

Ms Gupta said whilst much of the work had so far been focused on financial advisers, the City watchdog had now finished its work on pension product providers and identified key drivers of harm in that area. 

The regulator told providers to ensure their communication with advisers was "accurate and unbiased" with good customer outcomes at their forefront, highlighting that advisers should "not be encouraged" to make "inappropriate recommendations" to consumers. 

Ms Gupta also addressed providers' remuneration structures, recognising staff carrying out frontline business development may have their pay and bonuses linked to "many different measures".

She said: "You should consider the need for meaningful measures of quality, rather than solely relying on quantitative factors.

"So, for example, weightings based on clearly defined customer outcomes, rather than a reliance on line management assessments only.

"You should ensure that remuneration incentives drive outcomes which are in consumers' best interest."

Providers were told to make sure their management information was detailed enough to allow them to fully understand and manage the risks from DB pension transfers.

They were reminded they had a responsibility to identify risks from business coming in, such as negative trends including a high volume of transfers from a single scheme over a short period or customers transferring out of new DC arrangements soon after transferring from DB schemes.

Ms Gupta added: "You should also assess MI for completeness. For example, where you monitor insistent customers, this should cover all applicable transfers including those accepted through platforms.

"Without this, the MI cannot accurately reflect your overall risk profile. Where you identify negative trends, we expect you to investigate and assess what action you may need to take, including notifying us."