Pension scheme members are at risk of losing out on retirement income due to poor advice linked to enhanced transfer values, the Financial Conduct Authority has warned.

In a review published today, which looked at nearly 300 cases from bulk pension transfer exercises between 2008 and 2012, the FCA said in a third of these cases “advice given to customers was not suitable although the failings were not equally spread across the financial advisory firms”.

Drivers of unfair customer outcomes found in the review included generic templates which were inadequately ‘tailored’ so the advice did not reflect specific member circumstances or give sufficient priority to the members’ own requirements.

Further, advice was given where the outcome focused solely on critical yield analysis without full consideration of wider member circumstances, the level of risk a member is willing and able to take was not established and fund recommendations were made which did not match the assessed risk profile of the member.

The FCA said other drivers of unfair customer outcomes included “the use of default receiving schemes, in some cases with uncompetitive charging structures" and "limited consideration of the suitability of a member’s other existing pension arrangements and limited consideration of the tax and means tested implications of accepting the offer".

FCA director of supervision Clive Adamson said “transferring from a defined benefit scheme to a defined contribution scheme is an important decision for consumers”.

“It is disappointing that our review saw failings in the advice given, particularly when incentives have been provided to consumers to transfer.

“All firms active in this complex area of pension transfer activity should think very carefully about the quality of the advice process and assurance framework required to deliver fair customers outcomes.”

The FCA said it intends to follow up its concerns with individual financial advisory firms and ask them to contact members and offer redress where appropriate.

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