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A practical guide to Pension Transfers

from defined benefit to defined contribution

Publication date:

09 September 2020

Last updated:

10 February 2021


Personal Finance Society

Defined Benefit transfer advice has been a focus for the FCA, government and consumer media for some time.

Peer-to-peer (P2P) lending, also known as online lending or loan-based crowdfunding, refers to a particular subset of crowdfunding, whereby money is lent to individuals or businesses on the expectation of regular interest payments (and capital repayments).

The decision to transfer out of a defined benefit (DB) scheme can be complex and whilst we remain of the view that the vast majority of consumers receive valued and appropriate advice from the majority of professional advisers in this market, it is appropriate we acknowledge the regulator's view that the number of consumers receiving a recommendation to leave their DB scheme has been consistently high for some time and that their assessment of suitability of Defined Benefit transfer advice continues to raise concerns.

On the 5th June 2020 the FCA issued its latest update on its findings from an initial sample of 85 firms most active in this market (responsible for 43% of DB transfers between April 2015 and September 2018) including file samples from 55 firms they deemed most likely to be providing unsuitable advice. From this the FCA found that whilst there has been some improvement in the quality of advice during this time, with 60% of the advice reviewed from 2018 being deemed suitable increasing to 80% in 2019, the level of suitable advice overall was below their objective for the market. Other key findings included too many firms failing to collect the information necessary to be in a position to provide suitable advice (referred to as ‘material information gaps’ or MIGs), a lack of adequate PII insurance and in some cases inadequate financial resources supporting their business.

At the same time, the FCA has set out a package of measures designed to address perceived weaknesses across the defined benefit transfer advice market, including its final rules and guidance, Policy Statement 20/6. This includes a ban on contingent charging and the availability of a form of abridged advice amongst other changes, most of which are due to come into force on the 1st October 2020. Whilst we have some concerns in respect of the practical application of these specific changes, we acknowledge that prescriptive regulatory action in these areas may contribute to greater public trust in advice overall. We welcome the best practice and case study examples of what it deems suitable and unsuitable advice in its Guidance Consultation GC20/1 which goes to greater lengths that we have seen in the past in helping firms understand what the regulator sees as good practice. We also acknowledge the introduction of the FCA ‘advice checker’, similar to that produced by the Pensions Advice Taskforce for the Pension Transfer Gold Standard back in 2019 and already adopted as good practice by many including the Pensions Administration Standards Association.

As the largest Professional Body for the Financial Planning profession we continue to signpost good practice to firms and consumers alike. We have now updated our Good Practice Guide: A Practical Guide to Pension Transfers from Defined Benefit to Defined Contribution (September 2020) to reflect the above.

Read the Good Practice Guide HERE (PDF)


This document is believed to be accurate but is not intended as a basis of knowledge upon which advice can be given. Neither the author (personal or corporate), the CII group, local institute or Society, or any of the officers or employees of those organisations accept any responsibility for any loss occasioned to any person acting or refraining from action as a result of the data or opinions included in this material. Opinions expressed are those of the author or authors and not necessarily those of the CII group, local institutes, or Societies.