damning report has just been released as part of the interim findings of the Financial Conduct Authority’s consultation into Defined Benefit/Final Salary Pension Transfers. It seems that when it comes to Final Salary Pension Transfer advice, the standard is falling far short of what the regulator would expect.
Final Salary Pension Transfer Advice: Getting it wrong
The figures show that half of financial advisers are wrongly recommending pension transfers. The FCA has reviewed 88 cases (since October 2015) where there was a recommendation to transfer and found that of these only 17% were suitable, 47% were unsuitable and in 36% of cases, it was unclear whether the recommendation was suitable or not.
There is a concern that Advisers are not digging deep enough to understand their clients’ needs, circumstances and financial goals. In some cases, the FCA felt that the Financial Adviser did not fully understand the amount of risk that their client was prepared to take with their pension, a basic premise for any pension transfer.
All this makes for grim reading if you’re considering transferring your final salary pension and it’s disappointing for us as a Pension Transfer Specialist to see that so many people are not getting the level of service that they rightfully deserve from others in the industry.
We’ve put together some tips that you can use to protect yourself and to make sure that you receive the best possible advice.
If you’re talking to someone who normally deals with mortgages or ISAs, it’s like going to see your GP for brain surgery, you just wouldn’t do it.”
Simon Garber, Managing Director 2020 Financial
Talk to an expert
The research highlights the need to seek expert advice. Simon Garber, MD of 2020 Financial Ltd and a Pension Specialist himself says “many people don’t know what a pension specialist is and assume that any financial adviser can help them, but it’s highly complex work best carried out by a qualified and experienced professional. If you’re talking to someone who normally deals with mortgages or ISAs, it’s like going to see your GP for brain surgery, you just wouldn’t do it.” It’s important that your Financial Adviser is asking the right questions and fully understands your current situation and future goals.
What should you do if you’re considering a Transfer?
- Make sure that the Financial Adviser you are seeing is a qualified Pension Transfer Specialist.
- Be confident that your suitability to transfer has been thoroughly assessed. Your Financial Adviser should have a full understanding of:
- Your personal situation – relationship status, dependents etc
- Your goals and reasons for wanting to transfer
- Your expenditure now and anticipated future expenditure
- Your Risk Profile and tolerance
- Current and future assets/ income (other pensions/investments etc)
- Your level of investment experience
N.B. If you are married or cohabiting then ideally your partner should be part of the process as well.
Examples of the type of questions you can expect to answer can be found in our Final Salary Pension Transfer Checklist
What happens next is just as important
Once a case has been built for you to Transfer your Final Salary Pension it is just as important that you have a plan for how you are to manage the money moving forward. You should fully understand how your money will be invested, any costs and tax-implications involved and you should also understand and be comfortable with the risks involved.
Important Note: Whilst cash equivalent values are high at the moment, you shouldn’t feel pressured to make an immediate decision. Transferring out of a Final Salary Scheme is permanent, once you’re out, you can’t opt back in. If you feel uncomfortable at all, you should stay put. You can always revisit the decision at a later date.
What the law says
By law, anyone seeking to transfer a pension worth over £30,000 is required to seek advice from a Qualified Pension Transfer Specialist, but given the lucrative nature of this kind of business, many more general Financial Advisers have been outsourcing, so the client doesn’t benefit from the same in-depth consultation as they would have if they went to a Pension Specialist. Don’t get caught out, ask whether you are dealing directly with a specialist.
If you feel that you have been mis-sold a transfer you can lodge a complaint with the Financial Ombudsman