Key findings on our recent work on pension transfer advice

Pension transfers have been a priority for us throughout 2018. Our work has focussed in particular on those firms most active in the market. We have also looked more closely into some firms based on intelligence (for example whistleblowing) we received.

Last year we reported on our supervisory work on pension transfer advice, including our review of the advice given to members of the British Steel Pension Scheme.

So far this year we have collected information from an additional 45 firms, following which we conducted further assessment work, including file reviews and visits, on 18 of them. Since April 2015, these 18 firms gave advice on to 48,248 clients on their Defined Benefit (DB) pension schemes, which resulted in 24,919 actual pension transfers. Following our assessments, two firms voluntarily ceased providing pension transfer advice and a further two varied their business models and surrendered their pension transfer advice permissions.

We are disappointed to have found that less than 50% of the advice we reviewed was suitable. Our results are based on our targeted work and are therefore not representative of the whole market. However, it is particularly concerning that, despite our feedback to the sector, firms are still failing to give consistently suitable advice. Our assessing suitability review in 2017 showed that around 90% of advice on pensions and investments was suitable. It is unacceptable that pension transfer advice should persistently remain at such a low level in comparison to investment advice.

We expect firms to take prompt action on our findings and to check that their business model and advice processes do not exhibit similar failings. Firms should review their risk management approach and controls to ensure that they are effective in mitigating potential harm to customers. It is important that firms act now to make any necessary changes.

We have recently requested data from every firm with permission to advise on defined benefit pension transfers, which will provide us with a complete picture of the whole market from 2015 to date.

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.

Key findings

We are very concerned that too many firms are not consistently providing suitable advice on transfers. We found firms that had recommended transfers where the client’s needs and circumstances meant that retaining the DB pension would have been in their best interests. We expect advisers to start from the position that a pension transfer is not suitable, but that there are occasions when it is in the client’s best interests to transfer. We also saw instances where firms had advised a member to retain their benefits when it would have been suitable to transfer them.

At several firms senior management had failed to identify and mitigate the risks associated with DB transfer business, either through lack of understanding of pension transfer business, or because they did not adequately oversee the activities of their advisers and transfer specialists. In some cases senior managers failed to adequately understand and manage the conflicts of interest caused by their charging structures.

We have previously highlighted that it is important for firms to have in place adequate advisory, transfer specialist and compliance resources. We continue to see firms whose volumes of transfer advice have risen significantly, but whose risk management has not been effective and resources have not been adequate to match the increased demand. We saw firms adopting commoditised processes which did not take account of the needs of customers. We also observed that risk management tools were not keeping pace with the growth of firms’ pension transfer businesses, which resulted in issues in those firms not being identified.

There were some firms where the senior management had recognised the high risk nature of this type of business, and had put in place additional controls such as enhanced compliance engagement throughout the advice process. This helped identify and rectify issues at the earliest possible opportunity, and these firms had better rates of suitable cases.          

We expect firms to pay close attention to our feedback and to review and amend their processes as appropriate. We are disappointed by the number of firms we assessed which should have been aware of our concerns but had not taken effective action to address the issues we have identified. Firms failing to review or amend their business models in light of our concerns can expect serious consequences.


As part of our review of the 18 firms’ processes we reviewed the advice they gave on 154 transfers. Our suitability findings were as follows:

  • suitable: 74 (48.1%)
  • unsuitable: 45 (29.2%)
  • unclear: 35 (22.7%)

This compares with results across our previous phases of work in this area which found 49% of advice was suitable, 33% unsuitable and 18% unclear.

We rated files as unclear where firms failed to collect key information as part of their fact finding or where they did not conduct sufficient analysis to demonstrate (for example in the suitability report) why their recommendation is suitable.

We reviewed 32 files (included in the figures above) from the four firms which either varied or surrendered their permissions following our intervention. Of these 32 files we identified only 1 suitable recommendation. These firms had systematic flaws in their advice process and/or business model, which significantly impacted on their ability to provide suitable advice.

While these firms significantly affected the overall suitability rates, we are concerned that the suitability rates overall remain significantly lower than those we observed in our Assessing Suitability Review, where we found 90.9% of retirement income advice suitable.

Our update in October 2017 highlighted that poor suitability results were, in part, being driven by firms:

  • failing to obtain enough information about clients’ needs and personal circumstances
  • failing to consider the needs of the client alongside the client’s objectives when making a recommendation
  • not making an adequate assessment of the risk a client is willing and able to take in relation to their pension benefits

We continued to observe failings in these areas. Several firms failed to collect sufficient information on the client’s personal circumstances (for example, their other pension arrangements or plans in retirement). Even where this information was collected firms did not always fully consider this information when making their recommendation.

We observed firms:

  • Using generic objectives in fact finds, such as 'flexibility' or 'increase pension' without exploring what these mean to the client, whether the client is able or willing to take the risk required to achieve those objectives, or why they were prioritised ahead of the other needs and objectives of the client.
  • Prioritising the provision of ‘death benefits’ for spouses and dependants in the event of the client’s untimely death without exploring alternative options (eg existing DB scheme benefits or an insurance policy). Firms also failed to take into account the risk that the flexi-access funds could be depleted by the time of the client’s death.
  • Using generic objectives to justify a transfer, without obtaining the necessary information about those objectives. For example, basing a recommendation on the client’s objective to take control of their pension without exploring the reasons for this. This prevents the firm adequately assessing whether the client is able or willing to take the risk required to achieve their objectives.
  • Failing to obtain the necessary information about the client’s income and expenditure before making a personal recommendation. For example:
    • Recommending that clients use a Pension Commencement Lump Sum (PCLS) to repay debt or buy a property without obtaining details about the amount needed or exploring alternative finance options.
    • Assuming that the client wants or needs a similar income to what they are currently earning, instead of obtaining details on what retirement plans the client actually has or what their income needs are likely to be in retirement.
  • Failing to take into account longevity prospects beyond average life expectancy to inform an assessment of the sustainability of income.
  • Failing to adequately manage situations where the client had multiple competing objectives. For example:
    • Recommending a transfer because the client wanted immediate cash and income in retirement and to leave death benefits to their heirs without considering or demonstrating to the client the impact that achieving one objective may have on the client’s other objectives.
    • Recommending that the client accesses PCLS from their pension, when doing so would jeopardise the client achieving their desired or required income in retirement.
  • Failing to consider relevant information about their client’s needs and circumstances when making a recommendation. For example:
    • Failing to adequately take into account the client’s proposed retirement date or the costs of the receiving scheme. In some cases this led to firms recommending clients invest in schemes where the aggregated charges had the potential to negate future investment returns so the client was unlikely to financially gain by transferring and had a high risk of being worse off.
    • Failing to consider the client’s other assets or pension schemes and how these could be used to meet the client’s objectives.
    • Failing to consider the client’s actual health, as opposed to the client’s perception of their risk of early death, which may often solely be based on the early death of family members.
  • Recommending clients transfer multiple DB schemes without considering whether the client only needed to transfer one scheme to meet their objectives.
  • Failing to assess, or using flawed methods to assess, the risk the client is willing to take in relation to their benefits. In particular, we saw firms relying on investment risk assessment tools which were not designed to assess the specific risks associated with transferring from a defined benefit scheme. Where transfer risk was assessed, we saw some firms using unbalanced language which was likely to steer clients to respond in a certain way.

We introduced rules and guidance in March 2018, which give further detail of our expectations of firms. We expect that these changes combined with the changes made in our Policy Statement 18/20 will help firms give suitable advice on pension transfers and as we continue our work in this area we will be reviewing how firms have responded to this guidance.

Disclosure and communications with clients

We also reviewed the adequacy of firm’s disclosure and communications with clients. Our findings were as follows:

  • compliant: 45 (29.2%)
  • non-compliant: 95 (61.7%)
  • unclear: 14 (9.1%)

The disclosure failings were driven in part by failings in firms’ standard documentation, particularly in the way they present initial and ongoing fees.

Some firms presented their recommendations in a clear and balanced way and provided easily understood summaries of the firm’s analysis to help the client understand the firm’s advice.

We also observed firms failing to communicate in a way which was clear, fair and not misleading. For example:

  • where information was provided about a pension scheme’s solvency or eligibility for the Pension Protection Fund (PPF) we observed the use of emotive language, and misrepresentations about the scope of PPF protection
  • writing long suitability reports with unclear recommendations. We saw firms presenting their reasons for and against a transfer, without making a clear recommendation as to whether the client should transfer
  • some firms did not present clear and fair information about the respective benefits and disadvantages of DB and Defined Contribution (DC) schemes. DB schemes’ provision for spouses and dependants and early retirement were presented negatively in contrast with the 'freedoms' offered by DC schemes
  • some firms over-emphasised the benefits and down-played the risks of transfer to an alternative arrangement

Triage services

We consulted on triage services earlier this year and confirmed our guidance in October. During our assessments, we found that, in many cases, firms were delivering a triage service based on a consideration of the circumstances of the client and providing regulated advice at this initial stage. We consider that any guidance based on a consideration of a customer’s circumstances which steers them one way or the other is likely to be advice on the merits of a transfer, and therefore pension transfer advice.

We also observed that some firms did not have controls or records relating to their triage service.

Specialist Transfer firms

In our last update we highlighted that some specialist transfer firms made transfer recommendations without considering the receiving scheme or investments, or knowing the introducing adviser’s intentions for investment.

The firms we reviewed in this phase of the project had largely responded to the issues we raised and adapted their business models accordingly.

Next steps

As outlined in our Business Plan, assessing the harm caused by unsuitable pension transfer advice and identifying the most effective ways to reduce it continues to be a key priority for us.

Following the analysis of the information we have requested from all firms in this market we will next year start a wide-ranging programme of activity with firms. Firm should ensure now they have taken onboard the issues we have identified, both here and in our new rules and guidance in PS18/6 and PS18/20 so that they are able to give suitable advice and to meet their ongoing competence requirements. We will not hesitate to take action against any firm that continues to present harm to consumers.