FSA takes action to address pension transfer advice failings

The Financial Services Authority (FSA) is taking action to improve the quality of advice given to customers to switch into a personal pension or self-invested personal pension (SIPP), following a review which found variable standards across a sample of 30 firms.

The review looked at transfers from all types of pension schemes into personal pensions and SIPPs since the A-Day pension tax regime changes (6 April 2006). Unsuitable advice was found in 16% of the 500 transfer cases reviewed. However, this was unevenly spread across the firms reviewed: some were giving suitable advice consistently; but some were found to be giving unsuitable advice at significant levels. In a quarter of firms, all cases reviewed were assessed as suitable; but in another quarter a third or more of the cases reviewed were assessed as unsuitable.

The FSA is determined to ensure all firms meet its required standards of advice. It will be writing to over 4,500 firms that advise on pension transfers, setting out its findings, the standards it expects of firms and the action firms should take to ensure customers receive suitable advice. The FSA will undertake further assessments in the third quarter of 2009. Firms that fail to take steps where necessary will face further action.

The FSA has also given individual feedback to firms involved in the review, setting out the action it expects them to take. Several firms will be subject to enforcement investigation as a result of significant failings identified during the review.

Dan Waters, the FSA's director of retail policy and conduct risk, said: "Switching into personal pensions and SIPPs from existing arrangements can be an appropriate move for many people, but this is a complex area of business where consumers rely heavily upon advisers.

"We are concerned at the variable results across firms. As a result, we are taking targeted action in relation to firms giving pension switching advice to deal with the risk of unsuitable advice on past and future sales, and to press all firms to meet the standards we expect."

The main causes of unsuitable advice were:

switches involving extra costs without good reason;
recommendations that did not match the customer's attitude to risk and personal circumstances;
failure to explain the need for, or put in place, ongoing reviews when these were necessary; and
loss of benefits from existing pension schemes without good reason.

The FSA will shortly publish information for consumers on its consumer website Moneymadeclear:

for consumers who have concerns about advice they have received to transfer into a personal pension or SIPP; and
for consumers who are considering switching their pension into a personal pension or SIPP in the future.