Defined Benefit  

Scam warnings on DB transfers begin to tick up

Scam warnings on DB transfers begin to tick up

The number of scam warnings on defined benefit transfers has reached a three-month high, despite activity in the market falling, XPS Pensions found.

Data from XPS Pensions found transfer activity in April fell to the lowest level since September last year, dropping by almost a quarter to a rate of 55 in every 10,000 members transferring per year. 

In addition, the value of these transfers remained largely unchanged over the month as financial markets remained stable.

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In April, the average value of transfers was £247,000, compared with £246,000 in March and £242,000 in February.

However, the number of scam warnings has started to climb, despite falling since December 2020.

The XPS Red Flag Index identified at least one warning sign of a potential scam or the potential for poor member outcomes in 59 per cent of transfers processed in April, up from 52 per cent in March.

Earlier this month (May 7), the Financial Conduct Authority said it will continue reviewing firms’ DB transfer advice until at least spring 2022.

This includes taking supervisory and enforcement action to redress clients who had previously received poor DB transfer advice.

Mark Barlow, partner at XPS Pensions Group, said: “It is disappointing to see an increase in the Red Flag Index after continual falls for the last three months. 

“With warning signs of poor member outcomes remaining so high, we welcome the FCA’s decision to extend their thematic review with the aim of driving up standards of pensions advice. 

“In the meantime, we continue to work with trustees and employers to ensure their members are able to access high quality advice.”

The regulator has probed firms multiple times over the past couple of years as part of its ongoing crackdown on unsuitable advice in the market. 

Last year the regulator revealed hundreds of firms had quit the market following its intervention and warned too many firms were still failing to collect the necessary information to provide advice. 

In 2019 almost 80 per cent of advisers in the defined benefit market were probed about their transfer advice as part of the regulator's crackdown, with the watchdog writing to more than half of the 2,500 advice firms in the sector expressing concerns.

Earlier this year, data from the FCA showed the number of active firms in the pension transfer market had declined from 2,426 firms in 2015-18 to 1,310 firms in 2018-20.

But there were 103 (6 per cent) new entrants to the market. Overall, the regulator said there were currently 1,521 firms with DB transfer advice permissions.

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