Watchdog warns over poor advice on pensions

FiNaNCiaL advisers are offering inappropriate advice to people tempted to ‘cash in’ their final salary pensions, the City watchdog has warned.

advisers are encouraging too many workers to drop out of secure company pensions and put money into high-risk investments instead, says the Financial Conduct authority (FCa).

it looked at 18 firms which offer pension transfer services, and found less than half their advice was suitable, saying: ‘We found firms that had recommended transfers where the client’s needs and circumstances meant retaining the defined benefit pension would have been in their best interests.’ Final salary and career average pensions – defined benefit (DB) pensions – guarantee a set percentage of their wages every year after retirement, and were the norm. But low interest rates made them expensive to run, so companies tempted workers with huge payments to switch to riskier defined contribution plans, and advice firms, which often only get paid if a customer transfers, have been urging workers to move money.

the FCa said: ‘at several firms, management failed to identify and mitigate risks associated with DB transfer business.’

it is estimated that 100,000 people are transferring as much £30bn out of their pensions every year. the FCa did not name the firms it probed, two of which have ceased trading.

Shortcomings included encouraging investment in schemes with charges so high they would wipe out any returns.