The Financial Services Authority (FSA) has criticised pension firms for giving unsuitable advice on pension switching.
A review by the FSA led to a number of firms carrying out past business reviews that will deliver more than £150 million in redress to customers.
The regulator studied the advice given out by firms. Some advisers were found to be offering ‘portfolio advice services', where the additional costs were not justified for a particular customer; the FSA also saw examples of tied advisers not investigating a customer's existing pension
Dan Waters, the FSA's director of conduct risk, says: "The actions we have taken to raise standards have driven significant change in the market and will see large sums of money returned to customers who received poor advice.
"In fact, more than 10% of all pension switching advice since April 2006 (A-Day) will be looked at again as part of the past business reviews firms are carrying out.
"However, although many firms have changed the way they operate, we remain concerned that some continue to give poor advice. Ignorance is no defence and we will continue to focus on the high risk firms through intensive supervision. We will not hesitate to take tough action against any firms that fall below our standards."
Things to consider before switching
If you are thinking about transferring your current pension into a new personal pension or self-invested personal pension (SIPP) you should consider several factors.
Firstly, will the new pension be more expensive than the existing one? If it is, then you need to be sure the extra costs can be justified.
Next, consider whether a stakeholder pension meets your needs and objectives. Stakeholder pensions are usually cheaper than other personal pensions and advisers should discuss them with their clients as a possible option.
You also need to work out whether it’s a wise move to transfer all of your pensions into a single new pension. This plan of action could incur costs which your adviser should be able to explain to you.
Another thing to look at is whether you will lose any benefits, such as death benefits or a guaranteed annuity rate option, by switching.
Some pensions may apply a penalty when you transfer out. These can be significant – running into thousands of pounds – so it’s important to check if one may apply in your case.
It’s also important to look at whether the investments in the new pension are right for the amount of risk you’re happy to take. An adviser can help you decide how much risk you are prepared to accept and can explain the risks and potential benefits of different funds and investments to you.
It’s vital to take professional advice before switching your pension and, depending on what course of action you decide to take, you might benefit from ongoing advice too. To find an IFA in your area click here.