The regulator has published important guidance on how pensions transfer advice might be given to vulnerable clients.
The update is linked to the Financial Conduct Authority’s wider work on the defined benefit (DB) sector.
And also mentions the Consumer Duty and the FCA’s more general work on vulnerable clients.
According to the guidance consumers in DB schemes may be in the following circumstances that could make them vulnerable:
- they may be worried about the financial situation of their DB scheme’s sponsoring employer
- they may be concerned about the solvency of their DB pension scheme
- they may have heard their DB scheme is at risk of going to the Pension Protection Fund (PPF)
- they may be in serious financial difficulty due to the cost of living
Also consumers in these situations may also be susceptible to scams or fraud if:
- they may appear overconfident in their decision making despite low knowledge of pensions or investments
- they may be experiencing distraction from personal life events
- they may be experiencing financial dissatisfaction
- they may be in cognitive decline or socially isolated or lonely
- they may appear in a hurry or agitated about arranging the pension transfer
The FCA gives examples of how firms may deliver good outcomes for potential vulnerable clients.
It added: “We work closely with the Pensions Regulator (TPR) and the Money and Pensions Service (Maps) when there is an increased risk of poor consumer outcomes, or concerns about a sponsoring employer’s solvency.
“We engaged with TPR, Maps and the Rolls Royce Pension Scheme and British Steel Pension Scheme and their schemes’ trustees to be vigilant against the risks associated with increased transfer requests because of redundancies.
“We will continue to monitor how firms are meeting our expectations and take swift action where we see malpractice.”
The FCA heavily scrutinised the DB transfers market after the BSPS scandal shone a light on transfer advice models.
It banned contingent charging in October 2020 after several years of fierce debate about the practice.
A contingent charge involved the transfer of a client’s pension being directly linked to the recommendation of the adviser to do so.
Critics of the method said it created an inherent conflict of interest between the interests of the client and suitability of the advice to transfer out.
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