Concerns that some consumers may be deciding to transfer their pension based only on the prospect of rewards such as cashback have been raised by the City regulator.
The Financial Conduct Authority (FCA) said some people may be focusing on an immediate or near-term reward, such as cashback on signing up to a consolidation service.
This means they may not be considering the full financial implications of their decision, the regulator said.
It added that it recognises the efforts firms already make to flag up to customers the often valuable benefits of their existing scheme.
The regulator said that pensions dashboards, which will eventually allow people to see all their pension pots in one place, will make it easier for consumers to track their pensions.
This may also drive higher demand to consolidate pension pots, the regulator said.
The research was published as part of the regulator’s findings from its multi-firm review of life insurers’ pension transfer processes.
The FCA said on its website: “We expect firms to be resourced with sufficient, well-trained staff to service the products they have sold or acquired and be able to respond to foreseeable spikes in demand.”
Under the Consumer Duty, which requires firms to put customers at the heart of what they do, the FCA said it expects firms to support consumers in making informed decisions. This means they should ensure their communications meet their customers’ information needs, it said.
The FCA’s website said: “Our findings suggest that firms are well-intentioned and seek to ensure consumers receive good outcomes when transferring their pensions.”
Jon Greer, head of retirement policy at wealth manager Quilter, said: “The FCA has said it is concerned that consumers are transferring their pension provider simply to take advantage of an immediate or near-term reward or incentive.”
He said cashback for pension transfers “could be a very tempting offer” for many people.
He continued: “However, many consumers will be unaware of the benefits their existing pension arrangements may have, and that by transferring you automatically give these up. This can include a higher tax-free lump sums or the earliest age you can access benefits – it all depends on the terms of the scheme.
“The FCA suggests that firms are rightly doing what they can to provide that information to a customer looking to transfer, but given where pension engagement is in this country, it is an uphill battle.
“The upcoming pensions dashboard is going to provide a lot more visibility to people of their various pensions, and thus there could be increased demand for consolidation services.”
