Defined Benefit  

DB transfers surge ahead of FCA contingent charging ban

DB transfers surge ahead of FCA contingent charging ban

A surge in pension transfers has led to the Financial Conduct Authority revisiting its stance on banning contingent charging, according to AJ Bell.

A Freedom of Information request by the firm to the FCA showed pension transfers surged as transfer values increased post pension freedoms with average values increasing from £258,109 in the six months following pension freedoms, to a high of £389,545 in the year to September 30, 2017.

According to the data, in the first six months after April 2015 57 per cent of those who received advice were recommended a transfer.

In the next 12 months, when the average transfer value jumped to £292,000, some 64 per cent of clients were advised to transfer out.

When average transfer values peaked at £390,000, almost three-quarters (72 per cent) of savers received a positive transfer recommendation, although numbers have fallen since.

The FCA had previously decided against interfering with advisers' charging methods but in July changed its stance and proposed to ban contingent charging in all but a few pension transfer scenarios.

This was to reduce concerns about a conflict of interest in situations where an adviser would only be paid if they recommended a transfer.

AJ Bell’s chief executive Andy Bell (pictured) said while he was sympathetic to the FCA's concerns he did not agree with its default position that defined benefit transfers were usually unsuitable.

He said the data showed transfer values had been driving the recent surge in activity in this area and not advisers.


How many clients were advised to transfer their DB pension?

How many clients were advised not to transfer their DB pension?

Proportion of advice recommendations that were to transfer

Average transfer value

1 April - 30 September 2015 (six months)





1 October 2015 to 30 September 2016 (one year)





1 October 2016 to 30 September 2017 (one year)





1 October 2017 to 30 September 2018 (one year)





Mr Bell said: “This makes perfect sense and suggests that the market is functioning better than the FCA thinks. The regulator’s starting position is that a transfer is not in the interests of most people but there are perfectly good reasons why a transfer will be the right outcome. 

“This would particularly have been the case as transfer values soared to record levels and that is reflected in the proportion of recommendations to transfer.”

He noted, however, that the figures only counted people that went through a formal advice process.

He said: “Many advisers operate a triage process that filters out clients for whom a transfer is very clearly not appropriate. If these clients were included in the data, the proportion of recommendations to transfer would be significantly lower.”

The watchdog considered in 2018 to switch to a more "neutral" starting assumption that, for most people, retaining safeguarded benefits was likely be in their best interests.

But following the "significant evidence" of unsuitable advice the FCA had found in previous months, including in relation to the British Steel Pension Scheme, the regulator concluded it would no longer be appropriate to make this change.

Mr Bell noted that one important point that was often ignored in DB transfers was that the scheme actuary of the transferring scheme was “obligated to confirm that all transfer values fairly reflect the benefits being foregone, subject to certain underlying assumptions about the scheme membership”.