Financial watchdogs are investigating a boom in the number of transfers out of direct benefit pensions – and may order a ban on moving money to another pension.
Thousands of workers and expats have shifted retirement savings from their employer’s final salary pension.
Companies are offering them huge ‘golden goodbyes’ of hundreds of thousands of pounds to leave their schemes and changes in IHT rules and pension freedoms have heightened the attractiveness of transfers.
Many expats have switched to tax-efficient QROPS. Since 2006, more than 108,000 expats have opted to move funds worth £8 billion to the offshore pensions.
Watchdog reviewing transfers
But the Financial Conduct Authority is investigating these transfers and has already stopped more than 50 advice firms from making transfers either by agreement or by issuing an order – and many advisers fear more firms will face a ban.
At the root of the issue is if switching from a direct benefit pension offering a certain retirement income and often other benefits is good for a saver.
The money transfers into a direct contribution pension, such as a SIPP, QROPS or other personal pension that offers no guaranteed income or benefits but payments based on the value of the fund on retirement.
In January, the FCA issued a notice laying out the regulator’s expectations for advisers giving pension transfer advice.
Providers see transfer requests soar
“We are aware that some firms have been advising on pension transfers or switches without considering the assets in which their client’s funds will be invested. We are concerned that consumers receiving this advice are at risk of transferring into unsuitable investments or – worse – being scammed,” said the FCA.
“Transferring pension benefits is usually irreversible. The merits or otherwise of the transfer may only become apparent years into the future. So it is particularly important that firms advising on pension transfers ensure that their clients understand fully the implications of a proposed transfer before deciding whether or not to proceed.”
Providers have seen requests for transfer values soar – Scottish Widows is up 170%, while the Pru is handling an 800% increase.