The City regulator is facing calls to contact more than 160,000 people who have cashed in their final salary pensions since 2015 after revealing it was worried about nearly 80 per cent of the firms providing bad advice in the £80bn market.
A former board member of the Financial Conduct Authority and an MP said the FCA needed to urgently address its concerns amid fears that the flood of transfers could lead to a fresh mis-selling pensions scandal.
A freedom of information request revealed that the FCA was planning to write to 1,841 financial advisers about “potential harm” in their defined benefit transfer advice. This represented 76 per cent of 2,426 advisory firms advising individuals between 2015 and 2018, when pension transfers began to boom.
“This data is shocking,” said Mick McAteer, a former board member of the Financial Services Authority, the forerunner to the FCA, and co-director of the Financial Inclusion Centre think-tank. “I had thought multibillion-pound mis-selling scandals belonged in the past, but clearly this is not the case,” he added, calling for a “full-scale inquiry” into what went wrong.
Nick Smith, a Welsh MP whose constituents were affected by widespread pension mis-selling, said: “Now that we know how serious the situation is, we urgently need to know what is being done about it. The FCA should immediately contact customers at firms where there are problems.”
Big reforms to pension tax rules in 2015, introduced by former chancellor George Osborne, made it more attractive for members of defined benefit schemes to cash in their secure pensions. The new pensions freedoms prompted a flood of transfers — triggering fears that trading in pensions for a cash lump sum could lead to lower retirement income, as well as the risk that people may run out of money.
In 2018, a parliamentary select committee said thousands of British Steel pension scheme members had been “shamelessly bamboozled” into transferring their pensions to unsuitable funds with high charges.
Mark van den Berghen, principal and senior consulting actuary at Buck, a consulting firm that lodged the FOI last year, said: “This latest information from the FCA is alarming and should worry all involved — providers, advisers, and scheme members.”
Revelations of the scale of problems in the pensions transfer market came in the same week that the FCA warned that “too much” transfer advice was not of an acceptable standard.
Last year the FCA found that 69 per cent of 234,951 people — or 162,047 — who had sought advice between April 2015 and September 2018 had been recommended to transfer, a figure the regulator said was “concerning”.
Mercer, the consultants, have estimated the total value of transfers from 2015 at £80bn.
The FCA told the FT on Friday that its expectations regarding advice were clear and it had been disappointed to see transfers being recommended at the levels that they had been.
“We have already asked firms to consider whether any of their customers are entitled to redress but any customer who is concerned about the advice they received should complain to the firm which gave them the advice,” the FCA added.