If you want to transfer a UK defined benefit pension the UK regulator (the FCA) has made it really blinking hard. If your pension has a transfer value of over GBP30k, which is not a lot really, you need a UK regulated FCA adviser to give you FCA advice. Once you have the advice they sign-off that they have provided that advice to your UK pension company, and the transfer can be completed. To give this advice the UK FCA adviser must have a specialist certificate in pension transfers.
In December last year the Financial Conduct Authority (“FCA”) released their report card on FCA advice providers (for defined benefit transfers) and it wasn’t pretty reading. Given the FCA hold 90% up as a pass mark standard, the fact that the advisers reviewed came in with only 48.1% having given appropriate advice is far from satisfactory.
The FCA were pretty blunt and stated, “there were cases where advisers recommended transferring when it would have been in the best interests of the client not to” and vice versa.
FCA spotlight sees firms disappearing from the market
By the FCA’s own admission they were targeting the advisers they believed were being “less than scrupulous” in their dealings with clients, so their sample was not representative of the market as a whole (18 FCA advice providers were targeted). Since the review a number of the 18 firms have withdrawn from the market.
So, the FCA is now doubling down and have requested information from every firm with permission to advise on defined benefit pension transfers. They have stated that “any firm that is active in this market can expect to be involved in our work in 2019. We will not hesitate to use our investigatory powers where we identify evidence of serious misconduct which could have caused harm to consumers.”
So, it is likely that:
- Even more firms will leave the defined benefit transfer advice market
- The requirements will get even more onerous for consumers in terms of documents to complete
The market for advice and the legislation could step completely out of whack to leave people in limbo
This is likely to. once again push up the cost of a pension transfer as the pool of providers narrows. Even now most firms that advise on defined benefit pension transfers will not even look at an individual where their pension pot is less than GBP100,0000. The rationale being that the advisory risk is too high and the cost of the advice would not be in proportion to the value of the funds.
If this trend continues we may end up in a position where someone with a fund value over GBP30k (the FCA mandated threshold for having to get FCA advice sign-off) but less than the GBP100k that advisers require as a mnimum are left in no-mans land. They will be unable to get the FCA adviser sign-off required even if they wanted to transfer.
It is great that the FCA is working to ensure the best outcomes for consumers, but it is ironic in that working towards an outcome that’s meant to best for consumers that the consumer doesn’t have a voice in the process.