Supporting consumers with pension transfers

Read how to support consumers with characteristics of vulnerability when providing pension transfer advice.

Consumers’ personal circumstances may mean they have characteristics of vulnerability that may impact their decision making. When consumers seek advice about transferring a defined benefit (DB) or other pension benefits, firms should be alert to potential indicators of vulnerability. Firms should create an environment where consumers feel they can disclose their needs and have structures in place to provide suitable support.

Consumers with characteristics of vulnerability

Due to their personal circumstances, a consumer may be especially susceptible to harm – particularly when a firm is not acting with appropriate levels of care. Consumers seeking advice on transferring out of pension schemes may have characteristics of vulnerability[1].

Consumers with DB schemes may be in the following circumstances:

they may be worried about the financial situation of their DB scheme’s sponsoring employer
they may be concerned about the solvency of their DB pension scheme
they may have heard their DB scheme is at risk of going to the Pension Protection Fund (PPF)
they may be in serious financial difficulty due to the cost of living

Any of these circumstances may cause a consumer to seek financial advice. For some, the pension scheme will be their only retirement provision aside from their state pension.

Consumers in these situations may also be susceptible to scams or fraud. The following are warning signs[2] that consumers may be more vulnerable to scams or fraud activity:

they may appear overconfident in their decision making despite low knowledge of pensions or investments
they may be experiencing distraction from personal life events
they may be experiencing financial dissatisfaction
they may be in cognitive decline or socially isolated or lonely
they may appear in a hurry or agitated about arranging the pension transfer

Consumer Duty, vulnerability and pension transfers

Our Consumer Duty[3] raises the standards we expect of firms, which includes new rules for the treatment of those customers who are in vulnerable circumstances. Firms should assess their approach to vulnerability for pension transfer customers and ensure that they are meeting the requirements and take the following steps:

Identify when customers with DB pensions are likely to approach them for advice and design and deliver support to meet their needs. In a two-adviser model firms should properly consider the customer’s particular circumstances and whether there are any indications the customer has been coached or influenced to transfer. In some cases it may be appropriate to have joint meetings with customers to manage the risks of communications being misinterpreted by either of the firms, or by the customer.
Encourage customers requesting a pension transfer or advice to disclose information where they see clear indicators of vulnerability.
Tailor communications to retail customers, considering the characteristics of retail customers, including those of vulnerability.
Where firms interact with customers based overseas[4], they should also consider whether their customers are susceptible to scams or fraud and look for the warning signs above. Firms providing overseas pension transfer advice should ensure that their service does not adversely affect groups of customers in the target market, including those with characteristics of vulnerability.

We work closely with the Pensions Regulator (TPR) and the Money and Pensions Service (MaPS) when there is an increased risk of poor consumer outcomes, or concerns about a sponsoring employer’s solvency.

We engaged with TPR, MaPS and the Rolls Royce Pension Scheme[5] and British Steel Pension Scheme[6] and their schemes’ Trustees to be vigilant against the risks associated with increased transfer requests because of redundancies.

We will continue to monitor how firms are meeting our expectations and take swift action where we see malpractice. Read more about our enforcement action[7].

Our assessment of harm

Consumers in vulnerable circumstances may be at greater risk of harm if things go wrong.

When firms do not have adequate systems and controls to support vulnerable consumers, or adequately trained and skilled staff, we have observed that their advice processes may not enable them to:

recognise and respond to vulnerability in line with customers’ needs when they have presented with characteristics of vulnerability
recognise how having characteristics of vulnerability might impact a consumer’s behaviour or decision making and provide appropriate support

The risk of harm is mitigated when:

firms explain clearly and fairly how the features of DB and DC schemes may assist consumers with characteristics of vulnerability
firms respond flexibly to consumers’ needs - for example to change the channels for advice from online to face to face services
firms recognise that consumers in financial distress may need financial guidance and signposting to other organisations that can help them, like MoneyHelper, and not transfer advice
firms consider when characteristics of vulnerability, like financial literacy, might impact the firm’s ability to assess attitude to transfer risk or fact finding

Examples of good outcomes

We have observed a greater likelihood of good outcomes in the following situations:

Situation 1: Fact find checks for vulnerable characteristics

A firm’s initial fact find document included a checklist of the 4 signs of vulnerability (health/life events/resilience/capability) with examples of each.

Advisers carrying out the fact finding confirmed whether their customers had any of the signs and recorded a summary next to each and a rationale as to why the customer did or did not have characteristics of vulnerability.

Situation 2: Firm makes adjustments to assist vulnerable client

A firm received a call from a customer who was looking to retire shortly and understood they could ‘cash in’ their DB scheme pension. This was the customer’s only retirement income other than state pension. They had worked at the same employer for 40 years and had no savings.

The firm arranged an initial face-to-face conversation and identified that the customer struggles with reading and writing and understanding basic financial concepts. The firm arranged a series of further meetings over a period of a month to give the customer time to understand their options and the risks of transfer. After the firm presented its recommendation (to remain in the scheme) the customer requested the firm arrange the transfer.

The firm arranged a follow-up meeting to check the customer’s understanding of the recommendation and the risks of being ‘insistent’ and transferring. The firm took a recording of the customer explaining in their own words the risks of transfer. The firm also recommended the customer talk to MoneyHelper[8].

Situation 3: Firm carries out horizon scanning

A firm proactively identified schemes where redundancy announcements had been made. It informed all its advisers that it should presume any consumer in those schemes had characteristics of vulnerability unless their initial assessment suggested differently.

The firm explained to its advisers that the presumption was due to the fact these consumers may be distressed and have short-term unemployment affecting their financial wellbeing, resilience and objectives.

Situation 4: Firm identifies need for debt management advice

A firm was approached for pension transfer advice via their website. They arranged a triage appointment online. At this meeting the customer told the firm that their working hours had been reduced, which meant that their repayments for existing debt were now unaffordable.

The customer was at a real risk of running out of money but knew they could possibly access tax free cash from their DB pension scheme. The customer’s stress and distress were apparent. The firm recommended they first seek advice on debt management before deciding whether to request pension transfer advice. The firm gave the customer contact details for MoneyHelper and Citizens’ Advice.

Examples of poor outcomes

The likelihood of poor consumer outcomes increases in the following situations:

Situation 1 : Firms’ policy is not sufficiently personalised

A firm’s policy said that all customers over the age of 55 were to be treated as vulnerable, solely based on their age. Customers over 55 were not assessed for any other characteristics of vulnerability. While they were treated with care and empathy, the firm missed opportunities to assess those customers’ individual circumstances.

The firm did not assess whether customers under the age of 55 may have characteristics of vulnerability. As a result, their communications and suitability assessments were not targeted to their customer’s needs.

Situation 2: Firms’ do not recognise and respond to vulnerability in line with customer needs

A firm had an initial meeting with a customer (45 years old) who was recently divorced and declared bankrupt. The firm was told they felt desperate about their financial circumstances, which were precarious. The firm met with the customer once and did not identify that they had vulnerable characteristics. The firm explained that they’d have to do some paperwork and a recommendation would be sent by email.

Once the recommendation and suitability report was received, the customer requested the firm transfer their pension benefits as soon as possible. They subsequently transferred into a SIPP and high-risk investments. The firm did not assess whether the customer’s characteristics meant they were vulnerable and prone to impulsive decisions. They did not consider whether advice to transfer at that point in time was suitable or whether it met the customer’s objective, especially given the fact the customer could not access the pension until age 55.

The firm’s approach meant they missed opportunities to get to know the customer and were not able to demonstrate compliance with the rules. The firm did not act in the customer’s best interests.

Situation 3: Firms processes, systems and controls missed characteristics of vulnerability

A firm with pension transfer permissions had an influx of queries from customers in one DB pension scheme. The customers had been introduced by a third party who was spreading rumours about their sponsoring employer’s solvency and saying it was safer to transfer their pension now.

The firm did not check the source of the introduction and so was unaware that customers had been referred by an unregulated person and had been given misinformation about the scheme’s solvency. The firm did not assess each customer for characteristics of vulnerability or find out why so many customer from the same pension scheme were using its services. As a result, it missed opportunities to support customers and provide them with the information they needed, which increased the risk of poor outcomes, and resulted in unsuitable advice.

First published: 30/08/2023 Last updated: 30/08/2023