What lies beneath?

One of the FCA’s recent publications, Regulation Round Up, contained several interesting articles. Of course, Consumer Duty occupied plenty of space, but one of the articles that didn’t grabbed our attention.

This involved censure of a firm and an associated FCA Final Notice issued on 12 May, but it was the numbers that really raised eyebrows. This one exercise related to:

  • DB transfers totalling £655,046,598
  • 1,567 clients
  • Average transfer values in excess of £400,000 and;
  • £23.17 million in redress!

This again shows that when things go wrong with DB transfer advice they really go wrong and it gets very expensive, very quickly, and whilst DB transfer issues still hit the headlines, the bulk of the activity has been over a relatively short period of time – mostly between 2016 and 2021 – so is there another, perhaps bigger issue, lurking largely unnoticed? Because most of the money from DB transfers ends up in DC.

A bigger issue?

Well, yes potentially, because the issues have been present for far longer and on a larger scale.

Those with a long enough memory (or who have been around long enough) will recall the FSA’s 2008 thematic review – Quality of advice on pension switching. In this the regulator identified the following issues:

  • The switch involved extra product costs without good reason
  • The fund(s) recommended were not suitable for the customer’s attitude to risk and personal circumstances
  • The adviser failed to explain the need for, or put in place, ongoing reviews when these are necessary; and
  • The switch involved loss of benefits from the ceding scheme without good reason

More recently, well, 11 years ago, the FSA issued another publication FG12/16 – Replacement Business and Centralised Investment Propositions and those who attended the recent Live & Local events run by the FCA will have been reminded of it – the FCA regards it as relevant now as it was when it was issued.

The findings within this were:

  • Firms failing to consider the impact and suitability of additional charges.
  • Firms failing to provide a comparison of the costs of the existing investment and the new recommendation.
  • Firms recommending switches based on improved performance prospects, but providing no supporting evidence to show that these performance prospects were likely to be achieved.
  • Firms often failed to collect adequate information on the existing investment or failed to consider the features and funds available within the existing solution.
  • Advisers recommending the firm’s CIP to clients for whom it was not suitable.

There are some strong correlations between the findings of both these reviews and the issues raised are still commonplace within files that ATEB checks, possibly more so now than ten years ago, with some firms moving clients en-masse to CIPs.

Depending on your sources, the figures may vary, but in 2021 estimates were placing the value of the UK DC market at £500 billion with an expectation that this figure could double by the end of the decade. This is a big market!

And as mentioned above, a large proportion of the money from transferred DB pensions is now… in DC.


If you look at many firms’ new business registers you will often find a high volume of cases that are replacements of existing arrangements. Investments yes, but a lot of pension switches. And lots of pension switches into CIPs, particularly since RDR.

Apart from funds released from DB schemes there really isn’t a great deal of new money around, so what’s there already often gets recycled into newer arrangements.

So what’s the problem?

Simply put, the issues that the FSA opined on in 2008 and 2012 still appear to be as prevalent now as they were then, certainly in our experience. And if the FCA finds big problems in the DC market then DB could be the tip of the iceberg.

As we know, the regulator is conducting thematic work on ‘at retirement’ advice this year, much of which will be based in funds held in, yes, you’ve guessed it, DC!

The FCA has issued a 60 question survey (87 when the supplementary questions are added) to many firms and it really is a monster to complete. The information it requests is very detailed and will provide the regulator with a massive amount of MI to work with, so the activity is already under way, and although we won’t find out what the findings are until the end of 2023, there are probably no prizes for guessing what the outcomes are likely to be.

And if, as we suspect, the findings are that advice standards aren’t what they should be, the issues identified in the PP switching review and subsequently, DB transfer advice, could eventually pale by comparison. The FCA may appear to be asleep at the wheel on some matters, but this could provide them with enough material to open up a whole new can of worms.

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

This really could be the tip of the iceberg. There are billions invested in DC pension funds and at some point clients will want to access their money. If the regulator uncovers serious advice failings then DB could be a drop in the ocean. We’ll be keeping a close eye on developments but it’s clear that the FCA isn’t requesting all this information for the fun of it.

Action Required By You

For information/consideration, but firms would be wise to ensure that their at retirement advice is top notch. Replacement business in particular still leaves much to be desired much of the time.
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About the Author

Paul has in-depth experience across a wide spectrum, having headed up compliance, T&C, monitoring, oversight and MLRO functions previously. He was also an IFA for some time so can see things from more than one angle.

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