Should you cash in your gold-plated pension?

Should you cash in your gold-plated pension?

Anyone wishing to transfer out of a DB or final salary pension is required to take advice if they have a transfer value of £30,000 or more.

However, in October (2018) last year the FCA published the results of a study that suggested as many as half of advisers were incorrectly recommending members transfer.

Meanwhile in February this year, in its report into the British Steel Pension Scheme, the Work and Pensions Committee warned that final salary pension transfers could become a “major mis-selling scandal”. It claimed that many scheme members had been bamboozled into cashing in their pension and moving their money into high risk investments, by fee-hungry advisers.

In order to increase the quality of advice consumers receive the FCA says that from October 2020 all pension transfer specialists will need to have a level four investment qualification. Advice must also consider not just whether or not a member should cash in their plan, but where that money will go afterwards and how it is invested.

It will continue to allow two advisers to provide this service – as is often required – but it will expect robust processes to ensure the client understands what each adviser is doing and how much they will charge.

Advisers will be expected to provide a report to clients explaining their recommendation whether their advice is to proceed with a transfer or not.

The FCA however hung back on banning contingent charging – one of the key recommendations of the Work and Pensions Committee report. Contingent charging means advisers only get paid if they recommend a transfer, creating a potential conflict of interest. However, as advisers point out, clients would be put off taking advice if they had to pay up front.

Recognising the complexity of the situation, the FCA will carry out a further consultation in the first half of 2019.


The FCA will also limit the scope of ‘triage’ services where adviser and clients can have informal discussions about the viability of a proposed pension transfer.

Commenting on the proposals Steve Webb, director of policy at Royal London, says: “It was always simplistic to say that all the problems around transfer advice at British Steel and elsewhere were due to contingent charging, so it is good that the FCA has shied away from a knee-jerk reaction such as abolishing contingent charging.

“The plans to make sure transfer advisers are well-informed on investment issues are welcome and should help to avoid consumers ending up with poor value investment solutions.”

He adds: “The biggest disappointment is on triage. There really does need to be a safe space where advisers can signal that they are very unlikely to recommend a transfer in a particular case without having to go through the entire advice process.  This is a missed opportunity to improve outcomes for clients.”

Tom Selby, senior analyst at AJ Bell says the FCA has had a tough balancing act.

“While the regulator continues to state that in most circumstances people are best advised to stay where they are, demand for advice remains high and there are cases where a transfer is in the client’s best interests.

“On the one hand, the regulator clearly wants to ensure consumers receive the best advice possible, but on the other hand it also wants as many people as possible to be able to access that advice.”

He adds: “Ultimately the aim here is to ensure more people are able to pay for good quality regulated advice, so any measure that risks reducing the supply of advice – or cutting off those with less ability to pay upfront – needs to be carefully thought through and evidence-based.”