FCA publishes DB pension transfer advice review findings

The FCA’s DB2 survey, which analysed 88 DB transfer case files where the recommendation was to transfer, exposed the depth of the suitability gap. Only 47% of the advice to transfer was assessed as suitable, 17% was unsuitable, and in 36% of cases it was unclear whether the recommendation was suitable. When the regulator looked at the recommended products and funds, just 35% were suitable, 24% were unsuitable and 40% were unclear, showing that product selection – not just the transfer decision – was a major weakness.

Conduct failings in DB transfer advice

The FCA has identified specific patterns of poor practice that are directly relevant to how post‑transfer assets are invested. It found firms recommending transfers where clients’ needs and circumstances meant that retaining the DB pension would have been in their best interests, indicating a fundamental misalignment between advice and client objectives. The regulator also highlighted cases where firms recommended clients transfer multiple DB schemes without considering whether transferring only one scheme would have been sufficient to meet their objectives, amplifying the volume of assets moved into DC and retail solutions.

In addition, the FCA reported that some firms over‑emphasised the benefits and downplayed the risks of transferring to alternative arrangements. For insurers, this goes directly to how risk, guarantees, investment volatility and income sustainability are described in adviser and distributor materials for annuities, drawdown and multi‑asset funds. Finalised Guidance 17/9 (FG17/9) specifies how firms should calculate redress for unsuitable DB pension transfers, defining the financial impact of advice failings on providers and intermediaries. This periodic review means the methodology for quantifying loss – and therefore the cost of remediation – is not static, and can be recalibrated as markets, products and regulatory expectations evolve.

Scale and timing of the DB transfer wave

From the introduction of pension freedoms in April 2015 up to September 2018, official figures suggest that nearly a quarter of a million people took advice on a DB to DC pension transfer. Around 170,000 of those individuals transferred out, with sums transferred exceeding £80bn, creating a substantial pool of assets now sitting in DC schemes, platforms and retail retirement products. Transfer activity surged, with a peak in 2017 and early 2018, coinciding with the FCA’s consultation and early supervisory work on DB advice.

This concentration of flows means that a relatively narrow vintage of business could carry disproportionate redress and reputational risk for the industry.

The FCA’s latest findings keep DB transfer advice firmly in the regulatory spotlight, and the next formal review of redress guidance will be a key decision point for how much of the historic transfer wave ultimately crystallises as compensation costs across the advice and product ecosystem.

Sources: fca.org.uk · fca.org.uk