WIREDGOV

The Financial Services Authority (FSA) is taking action to improve the quality of advice given to customers to switch into a personal pension or self-invested personal pension (SIPP), following a review which found variable standards across a sample of 30 firms.  

The review looked at transfers from all types of pension schemes into personal pensions and SIPPs since the A-Day pension tax regime changes (6 April 2006).  Unsuitable advice was found in 16% of the 500 transfer cases reviewed.  However, this was unevenly spread across the firms reviewed: some were giving suitable advice consistently; but some were found to be giving unsuitable advice at significant levels. In a quarter of firms, all cases reviewed were assessed as suitable; but in another quarter a third or more of the cases reviewed were assessed as unsuitable.

The FSA is determined to ensure all firms meet its required standards of advice.  It will be writing to over 4,500 firms that advise on pension transfers, setting out its findings, the standards it expects of firms and the action firms should take to ensure customers receive suitable advice.  The FSA will undertake further assessments in the third quarter of 2009.  Firms that fail to take steps where necessary will face further action.

The FSA has also given individual feedback to firms involved in the review, setting out the action it expects them to take.  Several firms will be subject to enforcement investigation as a result of significant failings identified during the review. 

Dan Waters, the FSA’s director of retail policy and conduct risk, said:

“Switching into personal pensions and SIPPs from existing arrangements can be an appropriate move for many people, but this is a complex area of business where consumers rely heavily upon advisers. 

“We are concerned at the variable results across firms.  As a result, we are taking targeted action in relation to firms giving pension switching advice to deal with the risk of unsuitable advice on past and future sales, and to press all firms to meet the standards we expect.”

The main causes of unsuitable advice were:

• switches involving extra costs without good reason;
• recommendations that did not match the customer's attitude to risk and personal circumstances;
• failure to explain the need for, or put in place, ongoing reviews when these were necessary; and
• loss of benefits from existing pension schemes without good reason.

The FSA has published information for consumers on its consumer website Moneymadeclear:

• for consumers who have concerns about advice they have received to transfer into a personal pension or SIPP; and
• for consumers who are considering switching their pension into a personal pension or SIPP in the future.

Notes for editors

1. The report: ‘Quality of advice on pension switching: a report on the findings of a thematic review’ is now available.
2. The project has assessed advice given to customers since 6 April 2006 to switch their existing pension arrangement(s) into a personal pension plan (PPP) or self-invested personal pension (SIPP).  On 6 April 2006 (A-Day), the Government introduced changes to simplify the tax rules for personal and occupational pensions in the UK.  Following the tax changes, many advisers reviewed their customers' pensions, leading to a significant increase in transfers into PPPs and SIPPs.
3. The project has looked at transfers since April 2006 from any registered pension scheme to a PPP or SIPP, excluding transfers to Group Personal Pensions, Group SIPPs or Stakeholder Pensions.  The sample mainly consisted of transfers out of existing personal pensions.
4. The FSA is taking the following action with the 30 firms involved with the review:

• Several firms will be subject to enforcement investigation.
• Firms must address the shortcomings identified and highlighted to them.  This includes reviewing each individual customer case that the review identified as unsuitable, and remedying it where necessary.
• Firms with wider deficiencies will be required to undertake a wider review of past pension switching business, and/or their advice on other investments.

5. The FSA is taking the following action with firms giving pension switching advice, as a result of its findings:

• It will be writing to over 4,500 firms (responsible for most pension switching business) to summarise its findings, and to ask them to consider their sales in light of them, and take remedial action where necessary. 
• It will carry out further assessment of files in the third quarter of 2009 to assess firms' actions following the letters and to assess the quality of their advice on pension switching.  Firms that have not acted upon the findings will face further action.

6. The FSA regulates the financial services industry and has four objectives under the Financial Services and Markets Act 2000: maintaining market confidence; promoting public understanding of the financial system; securing the appropriate degree of protection for consumers; and fighting financial crime.
7. The FSA aims to promote efficient, orderly and fair markets, help retail consumers achieve a fair deal and improve its business capability and effectiveness.