Clamping down on the provision of bad pensions transfer advice continues to be a key focus for the Financial Conduct Authority (FCA) following the British Steel Pension Scheme (BSPS) scandal. 

We reported back in April about the FCA’s self-reporting on its conduct in response to reports that financial advisers had been providing improper advice to members of the BSPS.

Following the lessons learnt from the BSPS case (see our blog on that), the FCA continues to take significant enforcement action against those advisers giving poor defined benefit (DB) pension scheme transfer advice, including on the BSPS.

The latest FCA action on bad transfer advice and the BSPS

It was reported recently that the FCA has banned two individuals, Steven Hodgson and Paul Adams, of Vintage Investment Services (which is no longer authorised since 23 October), from advising on pension transfers and opt-outs. This was a result of poor advice given in connection with transfers out of DB pension schemes, including the BSPS. 

In addition, the FCA has banned them from holding any senior management function in a regulated firm and they have been ordered to pay £32,700 and £53,200 respectively to the Financial Services Compensation Scheme (FSCS) as a contribution towards compensation for the affected people. 

The FCA said that, between January 2016 and December 2017, Vintage advised 97% of its DB pension clients to transfer out of their DB pension scheme and that two-thirds of the advice given by Vintage during that period did not meet the required standards.

The FCA’s approach to assessing poor DB transfer advice

The above is just the latest in the FCA’s drive to weed out financial advisory firms and individuals who provide unsuitable advice to consumers to transfer out of defined benefit pension schemes.

Following the BSPS scandal, the FCA published a document in Summer 2023 entitled “British Steel Pension Scheme – our approach to enforcement”. 

That sets out its approach to tackling unsuitable advice and has been updated to include this enforcement action (and a subsequent one from November). In relation to the BSPS, it noted that:

“We have carried out around 30 investigations into firms and individuals regarding DB transfer advice related to BSPS. Investigations are now complete, and we are working to reach final decisions on what sanctions are appropriate where we have found misconduct.”

It sets out the FCA’s approach to enforcement where there is evidence of serious misconduct.

It notes that: 

“We have seen 2 main types of misconduct in BSPS cases:

• In most cases, firms or individuals have breached the principle that they must conduct their business with “due skill, care and diligence”. This means that advisers have shown a significant lack of competence in their advice. 
• In more serious cases, firms or advisers have breached the principle that they must conduct their business “with integrity”. This means that they have been reckless or dishonest in how they have dealt with consumers and/or the FCA.”

Whilst the action that tends to hit the pensions press is the more serious imposition of financial penalties and banning advisers, the FCA has a full range of powers at its disposal to crackdown on bad advice including public censure and, as per this case, supporting wider redress efforts through the FSCS. 

The FCA’s DB advice assessment tool 

As part of the FCA’s 2019 review looking at the suitability of DB transfer advice, the FCA developed its “Defined Benefit Advice Assessment Tool” (DBAAT). Whilst this helped the FCA formulate its own assessment criteria of DB transfer advice, the other primary aim of the DBAAT was to help the market, in particular firms and pension transfer specialists, understand how the FCA assesses the suitability of DB pension transfer and related investment advice and disclosures. 

The DBAAT was published in 2021 and has been subsequently updated. Firms can use the updated DBAAT to assess the suitability of DB transfer advice and the adequacy of client disclosure for advice given after 1 November 2007.  

Comment

It is clear that a significant amount of work is still ongoing at the FCA in tackling bad DB pensions transfer advice. Cases like this are being reported every other month. It is not clear when the FCA expects to complete this project, which of course feeds into its work more generally with the FS industry on good consumer outcomes and its proposed outcomes and metrics for its commitments on that. 

With many DB pension schemes being in surplus now and the Government looking at ways in which to release DB scheme surpluses (including to augment members’ benefits) and also with the recently announced Budget changes bringing pensions savings into the IHT regime, it is more important than ever that DB pension scheme customers are given appropriately tailored, good quality advice to enable them to have an informed view of what is in their best interests.

If you would like to discuss the FCA’s regulatory action on tackling bad DB pensions transfer advice or any other aspect of this article, please contact your usual Burges Salmon pensions contact or Pensions Partner, Chris Brown. 

Co-written by Mairi Carlin and Chris Brown.