The regulator sent out an alert on providing advice on pension transfers.

The FCA said: “We are aware that some firms have been advising on pension transfers or switches without considering the assets in which their client’s funds will be invested.

“We are concerned that consumers receiving this advice are at risk of transferring into unsuitable investments or – worse – being scammed.”

The FCA pointed out that some firms have been failing to meet its expectations by recommending pension transfers based solely on whether or not the critical yield is below a certain rate set by the firm for assessing transfers generally.

It stated: “We would expect the firm to consider the likely expected returns of the assets in which the client’s funds will be invested relative to the critical yield.

“The firm should also consider the personal circumstances of the client before making any personal recommendation, taking into account specific other factors as they apply to the client.”

Officials said they expect a firm advising on a pension transfer from a defined benefit (DB) scheme or other scheme with safeguarded benefits to consider the assets in which the client’s funds will be invested as well as the specific receiving scheme.

The FCS said: “It is the responsibility of the firm advising on the transfer to take into account the characteristics of these assets.”

The alert stated: “A firm advising on a pension transfer should not undertake a comparison using generic assumptions for hypothetical receiving schemes. The firm must take into account the likely expected returns of the assets in which the client’s funds will be invested as well as the specific receiving scheme.

“Transferring pension benefits is usually irreversible. The merits or otherwise of the transfer may only become apparent years into the future. So it is particularly important that firms advising on pension transfers ensure that their clients understand fully the implications of a proposed transfer before deciding whether or not to proceed.”