Pension alert issued over cashback offers ‘tempting’ savers to transfer pots | Personal Finance | Finance

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 individuals might be focusing on an immediate or near-term reward, like cashback upon signing up to a consolidation service, without considering the full financial implications of their decision.

However, the regulator did acknowledge the efforts firms already make to highlight to customers the often valuable benefits of their existing scheme. It also noted that pensions dashboards, which will eventually allow people to view all their pension pots in one place, will simplify tracking pensions for consumers.

This could potentially drive higher demand to consolidate pension pots, according to the regulator. These findings were published as part of the regulator’s multi-firm review of life insurers’ pension transfer processes.

On its website, the FCA stated: “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 mandates firms to put customers at the heart of their operations, the FCA 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 stated: “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, commented: “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 noted that cashback for pension transfers “could be a very tempting offer” for many individuals.

Mr Greer 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 sum 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.”