Financial advisers are continuing to suggest that clients transfer out of generous defined-benefit or final-salary pension schemes despite repeated warnings from regulators that this is the wrong option for most people. The Financial Conduct Authority said its latest investigation of the pension-transfer market found that more than two-thirds of people receiving advice on whether to move their DB savings ended up shifting their cash into riskier defined-contribution (DC) plans.
The regulator has grown increasingly frustrated by its failure to deter advisers from offering poor advice. It has already intervened in the market, requiring anyone with a pension fund worth more than £30,000 to take independent financial advice before moving it out of a defined-benefit scheme. But despite telling advisers they should start from the position that a transfer is the wrong option, half the firms it reviewed told more than three-quarters of such clients to move their money.
The FCA believes the guaranteed, index-linked retirement income that defined-benefit pension schemes pay mean most people will be better off staying put. By contrast, defined-contribution schemes offer no certainty of future retirement income, with savers dependent on returns from financial markets.
It seems some savers have had their heads turned by generous pension-transfer deals offered by employers hoping to shrink their pension liabilities.