Pension Transfer – FCA Advice Checker

Back in June 2020, the FCA published an ‘advice checker’ to help consumers assess whether pension transfer advice they had received might be unsuitable and might warrant a complaint. This has now been updated and relaunched.


Details can be found here and the page includes a link to the checker itself. It is interesting that the page also includes a dedicated link for ex-British Steel scheme members – ‘British Steel Pension Scheme: what to do if you transferred out’. This page explains that half of the BSPS transfer cases the FCA reviewed were unsuitable and inviting individuals to use the checker to assess whether they should raise a complaint. It also refers to the BSPS Redress Scheme that is to be implemented and provides a link back to the advice checker.

The checker comprises a series of ten questions to be completed online. The three answer options for each question are in the form of:

  • Yes this happened
  • No this did not happen
  • Don’t know / can’t remember

Once all questions have been answered the responses are ‘submitted’. This might suggest that the individuals responses to the questions will be analysed and a conclusion reached. In fact, submission only leads to a page summarising the responses and describing how the individual should consider proceeding.

“If you received unsuitable transfer advice, you could be due compensation. To receive this compensation, you will need to complain.

If you answered ‘A’ to any of them (even just one), you may have received unsuitable advice and could be due compensation. To receive this compensation, you will need to complain. Follow our steps on ‘What to do if you think you received poor advice’.”

Any adviser involved with transfers would do well to consider the content of the checker as it gives very clear indications of what the FCA thinks are the ‘flags’ of potentially unsuitable advice. Considering these (and the more detailed DBAAT tool) against any new or past transfer advice should help steer the advice in the right direction.

We summarise the ten statements below to save everyone having wading through the screens online. Our comments then follow.

The ten questions

Statement 1
Your adviser didn’t ask you for all of the information on this list:

  • details about you and your family
  • how much money you need to support them when you retire
  • your and your partner’s (if you have one) jobs, current pay and spending, tax band or if you don’t have a job, if you rely on benefits
  • your plans for income in retirement and if you are entitled to a state pension
  • the state of your and your partner’s health
  • your and your partner’s other pensions, investments and debts
  • how much money you’d need to have the kind of retirement you wanted
  • how much risk you were happy to take with your investments
  • if you’d be prepared to accept less money in retirement if your investments did not provide what you needed

Statement 2
Your adviser didn’t check your knowledge and understanding of DB and DC pension schemes, and the risks and benefits of each OR explain to you the risks and benefits of DB and DC pension schemes so you could understand what you were giving up?

Statement 3
Your adviser didn’t explain how you could get the retirement you wanted, including retiring early, by keeping your DB scheme.

Statement 4
The pension you transferred was your only or largest guaranteed pension (other than state pension), and you had few other ways to fund your retirement.

Statement 5
Instead of focusing on how you could meet your needs in retirement, your adviser recommended you transfer for one or more of the reasons below:

  • giving you flexibility and control of your pension
  • maximising the death benefits your family would get if you died
  • helping you retire early
  • helping you take a larger tax-free lump sum

Statement 6
You thought your DB scheme employer would go out of business, and your adviser didn’t explain how the Pension Protection Fund would pay most of the defined benefit pension that you would have received if that happened.

Statement 7
You are now in a scheme, recommended by your adviser, where the charges you pay are much higher than you expected.

Statement 8
Your adviser recommended you transfer to get good returns but didn’t show you how poor returns or high charges would:

  • reduce your income
  • make your income lose value against with inflation or
  • lead to your income running out before you die.

Statement 9
You are now in a scheme that your adviser recommended where your funds are invested in hotels or student accommodation, storage, leisure developments, parking schemes, forestry, precious metals/stones or other unusual investments.

Statement 10
Your adviser recommended in writing that you should not transfer but:

  • hinted you should do so anyway
  • did not explain the value of your existing DB scheme
  • did not explain the risks of a transfer
  • gave you a general list of the risks of transferring against advice without making these personal to you

Our thoughts

These ten aspects can be summarised in a ‘good transfer advice’ process as follows:

  1. Gather ALL the information required to give suitable advice (remember, if you do not have all necessary information, that the rules say you should not make ANY personal recommendation at all!).
  2. Make sure the client understands the differences between a DB and DC pension and the risks and costs involved in transferring out of the DB scheme.
  3. Identify credible, client specific needs and objectives.
  4. Consider ALL potentially viable ways of achieving those objectives without having to transfer.
  5. Provide the client with realistic projections of his or her future situation if a transfer does or does not happen, including the impact of low returns and/or high charges.
  6. Ensure the suitability report accurately reflects the recommended course of action and is not contradicted by anything said to the client. As with any report, the client should be informed of all generic risks and disadvantages of the recommendation and also any specific risks applicable to that particular client and the report should explain the value of the DB scheme in a fair and balanced manner.

We would particularly draw attention to Statement 5. We have written before about how many reports that we see list objectives that are either vague or generic rather than being client specific. It is very common to see flexibility and control as the primary reasons for recommending a transfer  but these are simply features of a drawdown plan UNLESS the flexibility and control are defined in terms of what they mean to the particular client and are supported by evidence of why that feature is necessary. For example, information on file indicating that the client will have a need to top up income as a result of reducing working hours and/or has a gap between scheme NRD and when state pension will commence would support a need for being able to vary income. Control is much more difficult to justify. For example, unless the client is a self-investor intending to transfer to a SIPP, it is difficult to see how he or she obtains any real element of control by transferring. The adviser or a delegated discretionary manager will in practice make all the recommendations or decisions about investments, HMRC make all the (largely same) decisions about how monies can be taken and how tax applies and real life considerations about sustainability of income largely dictate how much the client can safely withdraw at any point in time.

Finally, it is worth considering Statement 7. It is all very well for clients to be tempted to transfer given the sizable funds often in play and to list all the things they will be able to do with that big PCLS. But will ongoing charges start to grate when the initial euphoria of spending the tax free cash is gone? The FCA quoted an average CETV of £350k a couple of years ago – it is probably higher now. At a not atypical overall ongoing charge of say 2% (adviser and fund/platform/plan charges) that comes to £7,000 per annum.

Important Note: ATEB news is intended to provide general information ONLY. The content, including any views expressed or guidance provided, does not replace the need to comply fully with FCA Rules and Guidance. Unless you have discussed news article content with ATEB, and specifically how it relates to your circumstances, then ATEB disclaims all liability and responsibility and actions arising from any reliance placed upon it. For the avoidance of doubt therefore, any reliance you place on such information without our consultation is at your own risk.

ATEB Compliance offers compliance and regulatory advice.

ATEB Suitability provides report writing software for the financial services market.

Our View

We find no surprises in the content of the checker. These aspects relate closely with what we find in cases where suitability is open to question.

Action Required By You

Review your transfer advice process in light of the ‘red flags’ suggested in the advice checker.
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About the Author

Technical Manager - Often referred to as the Oracle or the Sage, Alistair has a wealth of financial services experience. He is our go-to Technical Manager and enjoys nothing more than a complicated conundrum. Feel free to test his renowned knowledge by getting in touch.

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