Supporting consumers with pension transfers

Consumers’ personal circumstances may mean they have characteristics of vulnerability that may impact their decision making. When consumers seek advice about transferring a defined benefit (DB) or other pension benefits, firms should be alert to potential indicators of vulnerability. Firms should create an environment where consumers feel they can disclose their needs and have structures in place to provide suitable support. 

Consumers with characteristics of vulnerability

Due to their personal circumstances, a consumer may be especially susceptible to harm – particularly when a firm is not acting with appropriate levels of care. Consumers seeking advice on transferring out of pension schemes may have characteristics of vulnerability. 

Consumers with DB schemes may be in the following circumstances:  

• they may be worried about the financial situation of their DB scheme’s sponsoring employer 
• they may be concerned about the solvency of their DB pension scheme  
• they may have heard their DB scheme is at risk of going to the Pension Protection Fund (PPF)  
• they may be in serious financial difficulty due to the cost of living 

Any of these circumstances may cause a consumer to seek financial advice. For some, the pension scheme will be their only retirement provision aside from their state pension.  

Consumers in these situations may also be susceptible to scams or fraud. The following are warning signs that consumers may be more vulnerable to scams or fraud activity: 

• they may appear overconfident in their decision making despite low knowledge of pensions or investments 
• they may be experiencing distraction from personal life events  
• they may be experiencing financial dissatisfaction  
• they may be in cognitive decline or socially isolated or lonely 
• they may appear in a hurry or agitated about arranging the pension transfer 

Consumer Duty, vulnerability and pension transfers

Our Consumer Duty raises the standards we expect of firms, which includes new rules for the treatment of those customers who are in vulnerable circumstances. Firms should assess their approach to vulnerability for pension transfer customers and ensure that they are meeting the requirements and take the following steps: 

• Identify when customers with DB pensions are likely to approach them for advice and design and deliver support to meet their needs. In a two-adviser model firms should properly consider the customer’s particular circumstances and whether there are any indications the customer has been coached or influenced to transfer. In some cases it may be appropriate to have joint meetings with customers to manage the risks of communications being misinterpreted by either of the firms, or by the customer. 
• Encourage customers requesting a pension transfer or advice to disclose information where they see clear indicators of vulnerability.
• Tailor communications to retail customers, considering the characteristics of retail customers, including those of vulnerability. 
• Where firms interact with customers based overseas, they should also consider whether their customers are susceptible to scams or fraud and look for the warning signs above. Firms providing overseas pension transfer advice should ensure that their service does not adversely affect groups of customers in the target market, including those with characteristics of vulnerability.  

We work closely with the Pensions Regulator (TPR) and the Money and Pensions Service (MaPS) when there is an increased risk of poor consumer outcomes, or concerns about a sponsoring employer’s solvency.  

We engaged with TPR, MaPS and the Rolls Royce Pension Scheme and British Steel Pension Scheme and their schemes’ Trustees to be vigilant against the risks associated with increased transfer requests because of redundancies.  

We will continue to monitor how firms are meeting our expectations and take swift action where we see malpractice. Read more about our enforcement action. 

Our assessment of harm

Consumers in vulnerable circumstances may be at greater risk of harm if things go wrong.

When firms do not have adequate systems and controls to support vulnerable consumers, or adequately trained and skilled staff, we have observed that their advice processes may not enable them to:  

• recognise and respond to vulnerability in line with customers’ needs when they have presented with characteristics of vulnerability  
• recognise how having characteristics of vulnerability might impact a consumer’s behaviour or decision making and provide appropriate support  

The risk of harm is mitigated when:  

• firms explain clearly and fairly how the features of DB and DC schemes may assist consumers with characteristics of vulnerability  
• firms respond flexibly to consumers’ needs - for example to change the channels for advice from online to face to face services 
• firms recognise that consumers in financial distress may need financial guidance and signposting to other organisations that can help them, like MoneyHelper, and not transfer advice  
• firms consider when characteristics of vulnerability, like financial literacy, might impact the firm’s ability to assess attitude to transfer risk or fact finding 

Examples of good outcomes

We have observed a greater likelihood of good outcomes in the following situations:

Examples of poor outcomes

The likelihood of poor consumer outcomes increases in the following situations: