FCA warning fails to deter pension transfers

Action to stop financial firms recommending a move away from a workplace scheme does not seem to have prevented companies or retirement savers to shift their money

Action to stop financial firms recommending a move away from a workplace scheme does not seem to have dented the enthusiasm of companies or retirement savers to shift their money.

Advice watchdog the Financial Conduct Authority has halted 24 out of 63 IFA firms inspected from carrying out pension transfers.

Nevertheless, the average final pot paid by companies increased from £238,800 at the end of last year to £245,800 by January 31, says market monitor XPS Pensions.

Helen Ross, Head of Member Options, XPS Pensions Group said, the marked increase in transfer activity is likely due to the elimination of some of the political uncertainty plaguing the markets over the last year, which may have been putting members off making big financial decisions.

We are regularly asked whether there is any evidence of a surge in DB transfers as members try to beat a possible ban on contingent charging this year, but this is not strongly suggested by the numbers of members transferring from XPS administered schemes, but this may well materialise, said Ross.

Both the FCA’s podcast and the publication of the letter to IFA firms are interesting in terms of the strong wording used. The FCA states in the letter “We expect you to start from the assumption that a pension transfer is not likely to be suitable for your client” which mirrors The Pension Regulator’s sentiment for defined benefit pension trustees. I anticipate that we’ll see more of this positioning from the FCA going forward.”

Meanwhile, PwC Skyval pension index saw the combined deficit of defined benefit pension funds climb £40 billion from £170 billion in December to £210 billion in January.

The UK’s 5,450 DB schemes reported assets of £1,790 billion, compared with pension liabilities of £2,000 billion.

Steven Dicker, PwC’s chief actuary, said, following a partial recovery in the latter part of 2019, gilt yields have dropped again over the month of January causing an increase in measured UK pension schemes liabilities. The increase in liabilities is offset to some extent by the positive asset return, which is mainly attributable to the positive return on bonds.

With the general election and Brexit out of the way, at least some of the uncertainty of recent years has reduced and forecasters appear positive about the UK economy which may mitigate the risk of further interest rate falls, said Dicker.

However, UK pensions remain very sensitive to global factors and significant uncertainties remain both in the shorter term and with bigger picture investment concerns such as the impact of climate change, he said.