“The FCA’s look into pension transfers in its multi-firm review of life insurers flags up some interesting trends. While much of it covers ground that is fairly accepted – such as having well-resourced digital processes to deal with pension transfers – it did flag one area of concern that may need to be addressed.
“The FCA has said it is concerned that consumers are transferring their pension provider simply to take advantage of an immediate or near-term reward or incentive. Some pension consolidators and a handful of D2C platforms regularly offer cashback depending on the value of the pension that you transfer, and for many this could be a very tempting offer. However, many consumers will be unaware of the benefits their existing pension arrangements may have, and that by transferring you automatically give these up. This can include a higher tax-free lump sums or the earliest age you can access benefits – it all depends on the terms of the scheme.
“The FCA suggests that firms are rightly doing what they can to provide that information to a customer looking to transfer, but given where pension engagement is in this country, it is an uphill battle. The upcoming pensions dashboard is going to provide a lot more visibility to people of their various pensions, and thus there could be increased demand for consolidation services.”
Amber flag progress
“The other thing to note is the low prevalence of amber flags being raised, in only 2% of transfer cases according to this review. Given previous practices where it was raised merely where the receiving scheme held overseas investments, this is a positive thing and suggest progress is being made. However, the FCA did note some outliers which also suggests interpretation across the board is not consistent, and whilst the incidence is low in contract-based pension arrangements, the review did not include trust-based schemes where the practice of raising an amber flag solely for the receiving scheme holding overseas investments is likely significantly more prevalent. This is not an issue that we would say has been fixed per se, and further investigation is definitely required to help ease the friction this causes.”
|
