Defined benefit pension transfers market data October 2018-March 2020

This page focuses on the data collected from firms on the Defined Benefit (DB) pension advice market, between 1 October 2018 and 31 March 2020.

Key messages

  • This is the second set of ad hoc data we are publishing about the DB pensions transfers advice market. The first, published in June 2019, covered the period of April 2015 to September 2018. This second data set covers the period of October 2018 to March 2020. From April 2021, all firms with the DB transfer permission must report this data on a 6-monthly basis.
  • Overall the FCA continues to believe that for the majority of people it is not in their interest to transfer out of a DB pension. Where an individual seeks advice to transfer it is important that advice given is suitable and appropriate for their needs and situation. Where we find that firms are not meeting our expectations we will take action to ensure firms put things right.
  • The data shows some signs of improvement in the DB transfer advice market, most notably:
  1. the significant fall in conversion rates indicates that firms are starting to act more in line with our expectation and messages that for DB advice, in most cases, a transfer is not in the client’s best interest
  2. a significant reduction in clients proceeding to transfer against advice as insistent clients
  • The data shows a reduction in the number of firms offering DB advice. In some cases this will be as a result of not having adequate professional indemnity insurance for DB transfer advice, other firms have given up the permission as they had not used it for an extended period. There are 1521 firms with the DB transfer advice permission (at the time of publication).
  • All firms providing DB transfer advice should take note of our Draft Guidance and in due course, our Finalised Guidance, to check their understanding of our rules and their application, and to ensure they give suitable advice.

Why we collected this data 

We gather data from the DB market to measure what risks of consumer harm still exist or have newly emerged, what improvements have been made and to measure the impact of our work.

We collected data from firms based on the framework for future RMAR-regulatory returns covering DB and other transfers of safeguarded benefits. From April 2021, firms will report this data regularly to the FCA.

This data provides us with the information we need to focus our continuing supervision of firms. By focusing on firms where the risk of poor practice is highest, we can prevent consumer harm in the future by working with the firm, or stopping it carrying out activities until our concerns are resolved.

The FCA is committed to protecting consumers and improving market standards through continued engagement, including market wide communications and, where necessary, actions against firms who are not meeting our expectations. Where consumer harm is identified, where appropriate we can use formal powers to ensure redress is paid and the offending firms and advisors are proportionately reprimanded.

We sent this data request to 1,965 firms with the full permission for DB transfer advice in July 2020, to cover advice given in the period from 1 October 2018 to 31 March 2020. The data requested over this period was split into 6-month periods:

- 1 October 2018 to 31 March 2019 (6 months)

- 1 April 2019 to 30 September 2019 (6 months) 

- 1 October 2019 to 31 March 2020 (6 months)

The previous data request was sent to 3,042 firms in October 2018 with the full permission for DB transfer advice covering a 3.5-year period from April 2015 to September 2018. Read the summary of the data to find out more.

We are reporting this data as submitted by firms.

Data summary

  • 1,965 firms held the DB transfer advice permission as at 31 March 2020.
  • 1,797 firms (91%) responded to our data request. For the firms who did not respond, we will cross reference with other market data to establish each firm’s transaction levels. Where necessary, we will follow up directly with firms to obtain a response. As a reminder, all firms with DB transfer permissions must report this data via RMAR regulatory return to the FCA every 6 months from April 2021. We expect every firm who has DB transfer advice permissions to respond to our data requests.

Of those firms who responded:

  • 1,310 firms gave DB transfer advice over the 18-month period
  • 103 firms (6%) are new to the market since our previous request
  • 87,491 clients received advice between October 2018 and March 2020. Of those, 
  • 49,456 clients were provided with a personal recommendation to transfer or convert their pension (57%) 
  • 38,035 clients were recommended not to transfer or convert their DB pension (43%) 
  • of those clients advised not to transfer, the total number of clients the firm arranged a pension transfer or conversion for on an insistent client basis was 2,936 (8%)
  • some firms may have larger numbers of clients being recommended to transfer as they operate a triage service which results in fewer clients proceeding to take advice on a transfer. 943 firms reported data which showed that 20,633 clients decided not to proceed to advice after the initial triage discussion. This means that when triage services are taken into account, a total of 108,124 clients considered transferring their DB pension, of whom 46% were recommended to transfer.
  • 121 firms (9% of the firms that gave DB transfer advice) facilitated transfers for 2,936 insistent clients
  • 63 firms (5% of the firms that gave DB transfer advice) reported that they had accepted introductions from unauthorised introducers
  • 785 firms (60% of the firms that gave DB transfer advice) in the market used contingent charging between October 2018 and March 2020
  • 108 firms (8% of the firms that gave DB transfer advice) arranged 500 transfers into a workplace pension
  • firms advised on a total value of £30.3bn between October 2018 and March 2020. This is made up of £20.1bn in recommendations 'to transfer' and £10.2bn in recommendations 'not to transfer'

British Steel Pension Scheme

We asked additional questions to identify firms who advised clients on the BSPS. We continue to focus on this due to the high levels of unsuitable advice in this population. Although the data does not tell us directly about the suitability of advice, it provides us with information to help our proactive supervision of firms involved in driving consumer harm.

Of the 1,310 firms currently active in the market, 254 firms (19%) provided 3,427 clients with a personal recommendation to transfer from the BSPS in 2017-2018.

We aim to follow-up with every firm that was materially involved in providing BSPS advice. As we have done to date, where we find that their advice may have been unsuitable, we will tell them to take appropriate corrective action.

Where we suspect serious misconduct has occurred, we will undertake enforcement investigations. We are currently undertaking approximately 30 investigations into firms and individuals where the principal focus is DB pension transfer advice.

Professional indemnity insurance

Following our data request in July 2020, 1,191 firms (91% of the population who confirmed they had provided DB transfer advice in the period covered by our data request) held professional indemnity insurance (PII) to cover DB transfer advice they provided. Of these, 364 firms (28%) had an active PII policy with exclusions. We also found 119 firms (9%) did not have PII cover.

We expect that all firms providing DB transfer advice have appropriate PII cover in place, in line with our rules. If they don’t, they must not carry out DB transfer advice.

We continue to engage with interested stakeholders in the market to monitor and assess the availability of PII for DB transfer advice as the PII market evolves. We have engaged with professional and trade body representatives from the advice sector, as well as speaking directly with individual insurers and brokers. 

Trends 

Chart tips: hover over data series to view the data values and filter the data categories by clicking on the legend.

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Data table

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This graph shows the number of clients advised to transfer, advised not to transfer and clients provided with guidance only saw an increase from April 2015 to April 2018.

We expect that a firm should only consider a personal recommendation to transfer, conversion or opt-out to be suitable if it can clearly demonstrate, that the transfer, conversion or opt-out is in the client’s best interests. Find out more about our rules and guidance for DB transfer advice in COBS 19.1 of the FCA Handbook.

Between October 2015 and September 2018, the data was collected in yearly periods. We have rebalanced Figure 1 to illustrate two equal 6-month periods for the dates. Since April 2015, the data shows an increase in the volume of DB transfers coupled with a high conversion rate (number of clients who were advised to transfer from the total number of clients advised). Since our April 2015 to September 2018 data request, the conversion rate has declined from an average of 69% to an average of 57% between October 2018 and March 2020.

The conversion rate with triage (proportion of clients who ask about transferring who end up being transferred) has declined from a peak of 58% in 2016/17 to 43% in March 2020. When triage services are taken into account, an average of 46% clients were recommended to transfer between October 2018 and March 2020, compared to an average of 55% between April 2015 and September 2018. 

The number of active firms in the market has declined from 2,426 firms in 2015/18 to 1,310 firms 2018/20. As the former figure was collected over a 42-month period but the latter was collected over an 18-month period, the figures are not directly comparable.

Between October 2018 to March 2020, 69% of firms providing transfer advice recommended 75% or more of their clients to transfer. A large proportion of these firms had advised on relatively few transfers. 8% of firms who had advised on 30 or more transfers over the 18-month period recommended 75% or more of their clients to transfer.

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Data table

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Our data shows that 39,414 consumers were advised to transfer on a contingent charging basis between October 2018 and March 2020.

Contingent charging (where advisers only get paid if a transfer proceeds) was used by 60% of firms during the 18-month period. We have banned the use of contingent charging from 1 October 2020, following Policy Statement 20/06. This reduces firms’ incentive to recommend a transfer. 

There is an exception to the ban in specific circumstances where a consumer is more likely to benefit from advice and may be unable to afford non-contingent advice charges.

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Data table

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This graph shows average value of transaction when transferring a DB pension scheme and when not transferring a DB scheme. This shows the amount has slightly increased in this 18 month period, but only fractionally. The previous 3.5 years had a much higher transaction average. This is split by the 6 monthly periods. 

From October 2018 to March 2020, the average value advised on was £336,496 compared to £352,303 from April 2015 to September 2018. The data shows that the average transfer value where clients were advised to transfer was £405,178 compared to £267,814 for those advised not to transfer.

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Data table

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This graph shows that the number of clients who proceeded to transfer their DB pension scheme into a workplace pension is very low.

At the time the advice was given, firms needed to explain why they considered a recommendation to a FCA-regulated pension scheme was at least as suitable as making a contribution to an occupational or group scheme available to the client. 

It is concerning that of the 49,456 clients advised to transfer, only 500 (1%) were transferred to a workplace pension scheme (WPS) between October 2018 and March 2020. 

To address ongoing conflicts of interest, from 1 October 2020, advisers must consider an available WPS as a receiving scheme for a transfer and demonstrate why any alternative is more suitable than the default arrangement of the available WPS.

Chart

Data table

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This graph shows that the number of clients who proceeded to transfer their DB pension scheme on an insistent client basis when advised not to transfer is low.

We expect firms to follow our Handbook guidance in COBS 9.5A when dealing with insistent clients.

Between October 2018 and March 2020, 121 (9%) active firms arranged pension transfers for 2,936 (8%) insistent clients (clients advised not to transfer who asked firms to arrange their pension transfer). 

Page updates

20/01/2021: Editorial amendment