Data from Scottish Widows shows a 170% increase in requests for transfer value analyses, compared with last year, while Selectapension data shows adviser transfer analysis activity is between 50-100% higher over the same period.
McPhail said: “We are concerned by the risks to investors who may give up a guaranteed pension from a final salary scheme in exchange for cash now, only to regret it later.
“In this post pension freedom world, and with pension transfer values at record levels, it is very easy to be persuaded by the lure of short-term cash. There is mounting anecdotal evidence that not all this activity is robust: for example, we are seeing and hearing evidence of targeted sales operations seeking out defined benefit scheme members to persuade them to transfer.
“We welcome recent government and FCA actions to protect investors, such as moving to ban cold-calling, however it will probably never be possible to completely eliminate the risks to investors,” he said.
Simply not enough money
The most obvious risk to investors is that the transfer value isn’t sufficiently generous to compensate for the guarantees which are being foregone, Hargreaves Lansdown said.
If investments underperform, or if the investor lives longer than expected, they may come to regret their decision. Even where they have made their choice because of death benefits, they should be mindful the government could change the taxation of defined contribution pension death benefits in the future.
The risks to the industry are hard to quantify, Hargreaves Lansdown concedes.
The large-scale activity on DB transfers which took place between the late 1980s and the mid-1990s, ended up costing in the region of £13bn ($16.2bn, €15.3bn), though that also included a lot of opt-out activity.
It also had a catastrophic impact on the industry’s reputation, the damage of which still affects relations between the industry and its customers and prospective customers today, the company said.
Investors are understandably wary of trusting the financial services industry which at the time put its own interests ahead of its customers.
A separate survey by Investec Wealth & Investment found that UK advisers are still wary of DB pension transfers due to the risks associated with successful challenges to historic advice.