FSCS data has revealed DB transfer-related pay-outs have doubled in the last two years although Royal London director of policy Steve Webb has argued this offers limited insight into the quality of more recent financial advice.
Pay-outs to those wrongly advised to transfer out of their defined benefit (DB) pension rose to more than £40m last year, data from the Financial Services Compensation Scheme (FSCS) has shown.
According to the Financial Times, this figure is an increase on the £37.5m paid out in 2017 and double the £20m paid out in compensation in 2016.
The increase in pay-outs coincided with a rise in general pension transfer action – which includes non-DB related activity – from a total value of £5.4bn in 2014 to £37bn in 2017, according to the Office for National Statistics.
Welsh MP Nick Smith, whose constituents include steelworkers affected by poor transfer advice, told the FT the figures were “absolutely shocking”. Former pensions minister Webb, however, said that, in the grand scheme of things, compensation pay-outs had been minimal compared with the amount of money transferred.
0.2% of value transferred
“If you just look at the last year, the increase is not that big,” said Webb. “There is a lag on this – FSCS claims now are probably about advice given several years ago and so, to be honest, these numbers don’t really tell us a lot about what is going on with advice being given now or recently.”
Webb suggested most people would have expected a bigger jump between 2017 and 2018, and said compensation payments were small compared with the amount of money transferred.
“If £20bn a year is transferred, actually, £40m compared with £20bn is an extraordinarily small number,” he said. “Obviously any bad advice is one case too many and nobody is excusing it but, while £40m sounds like a lot, you could say that this is 0.2% of the value of transfer this year.”
He continued: “At the moment, the scale of successful complaints is clearly very small – although that is not to say it won’t grow. I think it will inevitably – but it will be some years before that turns into successful complaints, and I don’t think these numbers tell us anything very much about the quality of DB transfer advice in the last year or two.”