FCA Pension Transfer Advice

TLW Solicitors has been working with an increasing number of clients who have been advised to transfer out of their final salary pension into another pension investment – the process is called Defined Benefits Pension Transfer or DB transfer.

Unfortunately, many people have received poor financial advice and transferred their pensions to private high risk or unsuitable SIPP products.  The new schemes may have high fees or not perform as well as expected, leaving the investor with a smaller pension pot than anticipated.

The FCA video talks about their expectations of financial advisers when advising clients about pension transfers. They highlight a number of steps that must be followed:

• Disclosure – The financial adviser must be open and honest about whether they are independent – and able to advise on all products available on the market – or if they are tied to a particular financial institution – meaning they are limited to advising on that company’s products.  They must also be clear about how much it will cost for their advice, including any commissions.
• Personal situation – This is the adviser’s opportunity to ask lots of questions about the investor’s circumstances, needs and objectives.  ‘Needs’ relate to income, bills, dependants and timescales.  ‘Objectives’ is more about what investors want to do with their pension pot – when they can access it and what control they have over it.
• Research – The financial adviser must carry out a detailed comparison of the benefits available in the current scheme against any possible alternative scheme the investor transfers into.  Pension rules changed in October 2018 and advisers must now illustrate the cost of benefits lost by moving schemes, and how much the new scheme has to make to match the old one.
• Suitability report – This outlines what the financial adviser recommends, namely whether to transfer or not, together with a detailed explanation of their reasoning.  Since October 2018, the report is obligatory, even if the recommendation is not to transfer. The report must not present a series of options for a client to choose from – it should help the investor to decide whether or not to accept the advice.
• Ongoing services – An adviser should talk about the importance of ongoing reviews and management of the pension fund.  Investors need to be clear that they don’t have to take these services and can cancel them at any time.

TLW Solicitors already act for many clients who have transferred out of final salary pensions into unsuitable or risky investments.

Peter McKenna, TLW Solicitors Partner and experienced financial mis-selling solicitor commented on the FCA video:

“In summary, the FCA video urges investors to think about the advice process – were all the steps covered in the advice provided? Has the adviser really made a clear case for why they are recommending that it is in the best interests of the client to transfer out of their scheme. Given that the FCA’s default position is effectively that a transfer would be wrong unless the advisor can prove otherwise, people should give very careful consideration to making such transfers and if they are in any doubt at all, seek a second opinion.”