Thousands of people are receiving letters from the UK’s City regulator urging them to lodge claims for compensation for being wrongly advised to transfer out of their guaranteed “final salary” pensions.
The Financial Conduct Authority has written to 2,677 people who transferred from defined benefit pensions after 2015, with letters warning them of “action needed”, the FT has learnt.
In a letter seen by the FT, the FCA said the recommendation to transfer made by the individual’s authorised independent financial adviser (IFA) — now in liquidation — was unsuitable for them, and they “could be owed money”.
“We encourage you to act,” said the letter, headlined “This is not a marketing exercise”. “If you do nothing you may end up with less money during your retirement,” it said.
The recipient was also told they had “limited time” to complain to the Financial Services Compensation Scheme, the industry lifeboat fund, which can pay compensation for poor advice of up to £85,000.
The FCA said the letters were being sent to customers of pension transfer advisers who had gone bust. It reviewed a sample of case files from these companies and had subsequently written to those where unsuitable advice was given, or may have been given.
The FCA declined to comment. But the letters encourage recipients to lodge complaints directly with the FSCS or with the liquidator of the failed IFA firm.
The action comes after the FCA became concerned about high levels of transfers since 2015 rule changes made it more attractive to exchange a defined benefit or “final salary” pension, which delivers a secure retirement income, for a more flexible cash lump sum. The regulator believes most people are better off keeping a defined benefit pension.
Between April 2015 and September 2018, FCA data showed that 235,000 defined benefit scheme members, with an average transfer value of £352,000, received transfer advice — a requirement when a defined benefit cash value is £30,000 or more.
Across the market, 69 per cent of this advised population were advised to transfer. In 2018, the FCA found that less than half of the transfer recommendations it reviewed, or 48 per cent, were suitable.
The FCA has previously come under fire for the pace of its investigation into a market wide pension mis-selling scandal, including from former board members of the watchdog. People only have six years to complain about bad advice from the date the problem started, or the transfer.
Among those to receive letters this month were former members of the British Steel Pension Scheme who were part of a mass transfer out of the plan in 2017 following a restructuring of the company.
About a dozen IFA firms, who were among those to recommend 7,700 steelworkers transfer their pensions with a total value of £2.7bn, have subsequently gone into liquidation.
In June 2020 the FCA said a sample review of transfer advice to steelworkers had found only 21 per cent of recommendations “appeared to be suitable”.
“The FCA need to up their game,” said Nick Smith, MP for the Welsh constituency of Blaenau Gwent, which includes thousands of steelworkers. “Letting former steelworkers know that they may have been mis-sold is an important first step, but only one part of the answer.”
Al Rush, principal at financial adviser Echelon Wealthcare, who is championing the steelworkers’ cases, said he was aware of letters being sent to steelworkers who had died, some four years after they transferred. “Boots on the ground are needed [here in Wales],” said Rush. “The clock is ticking on the complaints deadline.”
The FSCS said it reviewed every claim it received from former pension transfer clients of firms that have failed on a “case by case basis”.
“We do this irrespective of the review of any evidence carried out by the FCA to date,” said the FSCS.
In June 2020, the FCA required firms where it had identified issues to write to their customers and alert them that they may have been mis-sold.