Defined Benefit  

FCA warned of £25bn harm in DB transfer scare

FCA warned of £25bn harm in DB transfer scare

Pension transfer specialist Tideway has fired shots at the financial regulator, claiming its “negative review” of the defined benefit market could create consumer detriment to the tune of £25bn. 

In its response to the Financial Conduct Authority's consultation on pension transfer advice Tideway warned the watchdog’s stance on defined benefit work could create adviser bias towards recommending consumers to stay in schemes.

As a result, the pension transfer specialist has calculated, this could cost consumers up to £4bn in one large defined benefit scheme and £25bn across the wider market. 

The FCA has always maintained advice to transfer out of a defined benefit scheme, and giving up the guaranteed income it offers, is likely to be unsuitable for most consumers.

But Tideway, which has handled more than £1bn worth of final salary pension transfers since April 2015, argued some of the economic benefits of a defined benefit transfer are being ignored by the regulator. 

The advice firm claimed not all DB transfers were bad and in the current market, where more schemes are offering good valuations, some consumer could be missing out by not transferring.

James Baxter, partner at Tideway, said: "Our clients who transferred in the last four years since pensions freedoms at around 30X or more are already materially better off as a direct result of the transfer, and we know from talking to other advisers that we are not unique in experiencing these very positive outcomes.

"We understand the need to protect consumers and to improve advice standards on transfers, we are fully behind the FCA's efforts on this. However, we are concerned about generalisations on the merits of transfers when the range of offers is so large." 

In its most recent consultation, which was part of a growing effort to crack down on poor advice in the pension sector, the FCA found too much of the advice on defined benefit transfers it had seen was "still not of an acceptable standard".

Following the survey of 3,015 firms between April 2015 and September 2018 the regulator voiced concern about the volumes of recommendations to transfer it had seen, with 69 per cent of clients having been recommended to transfer out of their scheme.

The watchdog found the average transfer value was £352,303, equivalent to a total value advised on of £82.8bn.

The FCA has since issued a number of warnings to advice firms and is in the process of banning contingent charging on DB transfers to 'prevent harm', alongside introducing a new form of abridged advice, which would make it easier to advise people to not transfer.

Earlier this month the Financial Planning Forum of the Chartered Institute for Securities & Investment told FTAdviser it too believed DB transfers could be beneficial for some people.

A spokesperson said: "We believe that a pensions transfer is a valuable, viable and sustainable action that represents to many savers the embodiment of pensions freedoms.

"The fact that there have been unscrupulous 'advisers' taking advantage of the generally low level of financial literacy in the UK (and elsewhere) should not be used a means of eroding the freedoms that were granted.