A two-adviser advisory firm in South Wales is approached, in autumn 2017, by a long-standing client who is a steelworker at Port Talbot. The client is one of around 122,000 active and deferred members of the British Steel Pension Scheme facing the "Time to Choose" exercise — a decision between accepting transfer to BSPS2, moving to the Pension Protection Fund, or transferring out altogether. The client transfers out. Six years later, the firm receives a letter under the FCA's BSPS consumer redress scheme stating that the advice has been reviewed by the regulator's Defined Benefit Advice Assessment Tool and assessed as unsuitable. The firm's PI insurer is notified. The redress calculation comes back at £312,000.
Multiply that file by a dozen and the picture is what most small IFAs with DB transfer permissions in 2017-2018 are working through in 2026. The British Steel Pension Scheme cohort was the largest and most visible, but the same dynamic plays out across the FCA's wider work on DB transfer suitability. DB transfer advice is the single largest category of PI claim by value for the UK personal investment sector over the last decade. Underwriters know it, price for it, and in many cases now exclude it altogether.
This article is for principals and directors at FCA-authorised IFA firms with current or historic DB transfer activity, and for firms considering whether to retain DB transfer permissions at all in the current regulatory environment. It is a companion piece to our IFA PI insurance UK guide and our article on FOS complaints and PI cover.
Why DB transfers became a regulatory focus
The pension transfer market changed shape in April 2015 when the Taxation of Pensions Act 2014 introduced the "pension freedoms" — the abolition of the effective requirement to annuitise defined contribution pension pots and the consequent expansion of drawdown as the dominant decumulation route. The combination of pension freedoms, low gilt yields driving up cash equivalent transfer values, and a generation of DB scheme members reaching minimum retirement age produced a multi-year surge in DB transfer activity.
The FCA's position throughout has been that a transfer from a defined benefit scheme to a defined contribution arrangement is presumed to be unsuitable. The "starting assumption" is set out in COBS 19.1.6G and has been the FCA's settled position since the early 2000s. Advice firms therefore have to demonstrate, on the file, that the recommendation to transfer is in the client's best interests in light of the specific client's circumstances. The evidential standard is high, and the FCA's expectations have tightened in successive policy statements.
By 2018 the FCA had concluded that a large proportion of DB transfer advice in the market was not meeting the required standard. Policy Statement PS18/6 introduced changes to the advice process. PS20/6 banned contingent charging for most DB transfer advice from 1 October 2020. The FCA's BSPS-specific consumer redress scheme, in force from February 2023 under section 404 of FSMA, mandated that firms review their BSPS DB transfer advice files against a prescribed methodology and pay redress where unsuitability was identified.
The BSPS cohort comprised approximately 7,700 affected DB transfer cases identified by the FCA, with the redress scheme's eligible claim period covering advice given between 26 May 2016 and 29 March 2018. The FCA's published estimates put total redress under the scheme in the range of £49 million across the cohort, though the precise figure depends on the outcome of individual reviews and ongoing FOS and court activity.
The structural point for PI is that DB transfer claims combine three features that are difficult for insurers: high quantum per claim (driven by the long-tail value of the surrendered DB rights), high concentration risk (firms that did a lot of DB transfers did them for similar clients on similar fact-patterns), and a regulatory backdrop that gives the claimant a strong starting position on suitability.
What COBS 19 requires of the advising firm
The conduct rules for DB transfer advice sit in COBS 19. The principal requirements, summarised:
Personal recommendation only. Since 1 October 2018, advice on the transfer of "safeguarded benefits" (including DB benefits) where the value exceeds £30,000 must take the form of a personal recommendation. Information-only or "triage" services are permitted but must remain on the right side of the line between generic information and personal advice; the FCA's guidance on triage has tightened over time.
Pension Transfer Specialist. The advice must be given or checked by a Pension Transfer Specialist (PTS) holding the relevant qualification — typically the Level 4 Pension Transfer Specialist examination, with the Level 4 Diploma in Regulated Financial Planning or equivalent as a baseline. A firm without a PTS cannot give DB transfer advice.
Appropriate Pension Transfer Analysis (APTA). Required for advice on DB transfers, the APTA assesses the client's needs, circumstances, and objectives in the round. It replaced the older Transfer Value Analysis (TVAS) as the focal piece of analysis from October 2018. APTA must be supported by a Transfer Value Comparator (TVC) — a single-figure comparison of the transfer value offered against the estimated cost of replicating the DB benefits in a defined contribution arrangement, used to communicate the implicit "discount" or "premium" to the client.
The starting assumption of unsuitability. COBS 19.1.6G requires the firm to advise against the transfer unless it can demonstrate that the transfer is in the client's best interests on the specific facts.
Suitability and record-keeping. COBS 9 and 9A apply throughout, with the requirements amplified by the COBS 19-specific provisions and the FCA's published Finalised Guidance. The suitability report must explain the recommendation clearly and identify the risks. The file must support the recommendation on review.
Product governance and ongoing service. PROD applies to the choice of receiving scheme. Where ongoing advice is provided in respect of the transferred funds, the firm's ongoing service obligations under COBS 9 and the Consumer Duty continue.
A firm that did DB transfer advice during the 2016-2020 surge and is now reviewing its files in 2026 will be measuring those files against COBS 19 as it stood at the time of the advice — not as it stands now. The FCA's BSPS redress methodology applies its prescribed test irrespective of the contemporaneous COBS 19 version, but for non-BSPS files the regulatory standard applicable at the date of advice is the relevant standard.
The PI underwriting position on DB transfers
The PI market for IFAs with material DB transfer activity hardened significantly from around 2018 onwards. The pattern is well-documented in FCA and ABI commentary; the practical effect on the renewing IFA is some combination of the following:
Outright exclusion. A number of insurers withdrew capacity for DB transfer business altogether. The firm's PI schedule may include an endorsement excluding "all claims arising from advice to transfer benefits from a defined benefit pension scheme" or wording to that effect. Where the exclusion is on the current policy, the policy does not respond to a DB transfer claim notified during the policy period, regardless of when the advice was given.
DB-specific sub-limit. Cover is provided but with a sub-limit lower than the policy's main aggregate — for example, £500,000 in the aggregate for DB transfer claims sitting within a £1.7 million headline policy aggregate. This is common.
Increased excess on DB claims. A separately-stated, higher excess applies to DB transfer claims than to other claim categories. Five-figure DB excesses are not unusual; in some cases higher.
Specific exclusions for named cohorts. BSPS-specific exclusions are common — and BSPS-related cover, where offered, is frequently on materially restricted terms. Other named schemes have at times been the subject of similar treatment, particularly where the FCA has issued cohort-specific guidance.
Retroactive date carve-outs. Cover is provided going forward but the retroactive date is moved such that DB transfer advice given before a certain date is not covered. This is the trap that most often catches IFAs at renewal — they renew with a new insurer, the new insurer's standard wording carries a retroactive date that doesn't go back far enough, and the firm's historic advice is effectively uncovered.
Underwriting refusal. A firm with material DB transfer exposure and any adverse claims experience may find that the market for its PI cover is constrained to a small number of insurers willing to underwrite the risk at all.
The 2025-2026 market, as we read it, is more stable than 2020-2023 — capacity has returned for clean firms, pricing is no longer rising materially year-on-year, and underwriters have developed clearer views on what good DB transfer file management looks like. But the underwriting questions remain detailed and the appetite for firms with significant unresolved DB exposure remains constrained.
The BSPS consumer redress scheme
The FCA's BSPS consumer redress scheme deserves separate treatment because of its scale and its direct mechanical effect on firms' PI files.
The scheme, in force from 28 February 2023, required relevant firms to review the DB transfer advice they had given to in-scope BSPS members between 26 May 2016 and 29 March 2018. The review uses the FCA's Defined Benefit Advice Assessment Tool (DBAAT) — a prescribed scoring methodology designed to assess whether the advice was suitable on the file. Where the DBAAT review concludes that the advice was unsuitable, the firm calculates redress using the FCA's prescribed methodology and offers it to the consumer. Where the consumer accepts, the matter resolves; where the consumer or the firm disputes the outcome, the case can escalate to FOS or, in some configurations, court.
The PI implications of the scheme are significant in several respects.
The scheme triggered a wave of notifications across the firms in scope, much of it crystallising into paid claims under PI policies in force during the review period. PI policies' aggregation provisions interact with the BSPS scheme in ways that are wording-dependent — whether the BSPS cohort aggregates as a single root-cause claim under a single per-claim limit, or as separate claims each against the per-claim limit and counting separately against the aggregate, is a wording question whose answer materially shapes the firm's coverage.
Firms that had ceased trading or had cancelled FCA permissions by the time the scheme came into force fell outside the scheme's direct reach, but their former clients were able to take complaints to FOS or to FSCS as appropriate. The FSCS levy implications of BSPS have been a notable factor in the cost of the IFA PI sector overall.
Firms that had completed BSPS file reviews on their own initiative before the scheme came into force — many did, in response to FCA Dear CEO letters and the regulator's published commentary — were in a better position when the scheme arrived. The remedial work the firms had already done formed part of the evidence at PI renewal and, in some cases, allowed insurers to maintain cover where they would otherwise have withdrawn.
The scheme is, in regulatory terms, an exceptional intervention by the FCA — a section 404 consumer redress scheme is not a routine tool. The FCA's willingness to use it for BSPS is a marker of how seriously the regulator viewed the cohort. Whether similar schemes are deployed for other cohorts is open; the regulator has signalled it will consider them where the evidence supports.
Run-off and retroactive cover when DB transfer advice is in the file
The points made in the main IFA PI pillar guide on run-off and retroactive cover apply with particular force where DB transfer advice is in the file.
A firm that ceases trading or sells, and that has given DB transfer advice in the historic record, faces a long tail of potential claims that may not emerge until the client reaches retirement age and compares actual outcomes with what would have been received under the surrendered DB scheme. Six years of run-off is the conventional minimum, in line with English limitation law; longer periods are commonly advised where the DB advice was material in the firm's activity.
Buying run-off when DB transfer advice has been given can be expensive and, in some cases, contested by insurers. Where the firm has notifications open at the point of cessation, the insurer's willingness to write run-off on commercial terms may be limited. The conventional advice is to clean up the file before contemplating cessation — close out open notifications, complete any required reviews, document the position — and then approach the run-off purchase from a position of evidential strength.
Selling rather than winding down does not extinguish the run-off question. Acquirers of advisory firms commonly require the seller to fund run-off cover as part of the transaction, with the cost reflected in the consideration. The sale documentation must address this expressly; the alternative — that the acquirer's existing PI policy picks up the seller's historic liability — is rarely how the market structures these deals.
Where a firm transfers its client book to another firm but the original firm remains in existence (a common structure), the original firm's PI policy continues to be the policy that responds to claims for historic advice. The acquirer's policy responds to claims arising from advice given under its own banner. The position is the opposite of what intuition might suggest, and getting it right at the point of transaction is critical.
What underwriters look at on DB transfer business
A firm with current or historic DB transfer activity will see a renewal submission heavy on DB-specific underwriting. The questions, typically:
The number of DB transfer recommendations given by the firm, by year, going back five years (and often further). Volume and trend matter.
The proportion of recommendations that were to transfer (versus to remain in the DB scheme). The FCA has indicated that a firm whose recommendation rate is materially out of line with the wider market — particularly a recommendation-to-transfer rate well above 50% — is a flag for further scrutiny.
The split of DB transfer business by scheme — generic schemes, BSPS, other named schemes with regulatory attention.
The PTS arrangements — who within the firm holds the qualification, whether the PTS gives the advice directly or checks the advice of others, what the file-review process looks like.
The contingent charging history (pre- and post-October 2020) and the firm's current charging model for the small subset of DB advice that still occurs.
The firm's APTA / TVC methodology and software.
DBAAT review status — whether the firm has been the subject of an FCA s.166 skilled person review, an internal DBAAT review, the BSPS consumer redress scheme, or a related FCA intervention.
Notifications and claims relating to DB transfer business, with file-by-file detail where the volume is manageable.
The firm's response to each of those questions shapes the underwriter's appetite and the terms of the renewal. A firm that engages with each question fully and openly tends to come out better than one that minimises or omits.
What to do now
If your firm has given DB transfer advice in the past and has not yet completed an internal review against the relevant FCA methodology, that work should be done — both because it is the regulator's expectation and because it is the work that the PI renewal will rely on. We can help with the broker dimension of that conversation but the file review itself is a compliance exercise, typically led by an internal team or by an external compliance consultancy.
If your firm has open notifications relating to DB transfer business, the renewal submission needs to be prepared with care. The single most useful thing a principal can do in the weeks before submission is sit down with the file on each open notification and prepare a clear written summary of the position. A broker can then present that summary to the market in the way the market understands.
If your firm is contemplating ceasing DB transfer business or ceasing personal investment business altogether, the run-off position needs to be thought through before the decision is final. Buying run-off cover for a clean firm is materially easier than buying it for a firm with open issues, and the gap between the two prices can be substantial.
To talk through your firm's DB transfer PI position with an Apex broker, see the IFAs sector page or contact us.
Frequently asked questions
Does my PI policy cover defined benefit transfer advice given before 2020?
It depends on whether your current policy carries a retroactive date that goes back far enough, and on whether DB transfer advice is excluded by endorsement on the current schedule. Many IFA PI policies in the market now carry DB-specific exclusions, sub-limits or retroactive carve-outs. Reading the current schedule and comparing it with prior years' schedules is the first step. Where a gap is identified, the next renewal is the moment to address it; mid-policy fixes are rarely available on favourable terms.
What is the FCA's "starting assumption" on DB transfers?
COBS 19.1.6G provides that the firm should start from the assumption that a transfer from a defined benefit scheme to a defined contribution arrangement is not in the client's best interests. The firm must demonstrate on the file that the specific client's circumstances justify departing from that starting assumption. The starting assumption has been the FCA's settled position since the early 2000s and has been amplified, not diminished, in successive policy statements.
Is contingent charging still allowed for DB transfer advice?
In most cases no. The FCA's Policy Statement PS20/6, in force from 1 October 2020, banned contingent charging for advice on the transfer or conversion of safeguarded benefits — including most defined benefit transfers. Limited carve-outs apply within COBS 19 for certain client circumstances such as serious ill-health or financial hardship. Firms that gave contingent-charged DB transfer advice before October 2020 may have done so lawfully at the time, but underwriters use the historic charging model as one indicator of file risk.
What was the FCA's BSPS consumer redress scheme?
The BSPS scheme, in force from 28 February 2023 under section 404 of the Financial Services and Markets Act 2000, required relevant firms to review DB transfer advice given to in-scope British Steel Pension Scheme members between 26 May 2016 and 29 March 2018, using the FCA's Defined Benefit Advice Assessment Tool. Where the review concluded the advice was unsuitable, the firm calculated redress using the FCA's prescribed methodology and offered it to the consumer. The scheme was an exceptional intervention reflecting the scale of unsuitability the FCA identified in the BSPS cohort.
Do I need a Pension Transfer Specialist to give DB transfer advice?
Yes. Since 2018 COBS 19 has required that advice on a DB transfer be given or checked by a Pension Transfer Specialist holding the relevant qualification. A firm without a PTS cannot give DB transfer advice. Most insurers' PI policies that respond to DB transfer claims expect the PTS arrangements to be in place; absence of a PTS at the time the advice was given is a strong indicator of file risk.
How does the FOS approach DB transfer complaints?
The Financial Ombudsman Service applies the "fair and reasonable" test required by FSMA section 228 and, in DB transfer matters, takes into account the FCA's Finalised Guidance on suitability of DB transfer advice, the COBS 19 framework as it stood at the date of advice, and the FCA's prescribed redress methodology. Where unsuitability is found, the FOS typically directs redress calculated by reference to the FCA methodology, up to the binding award cap. We deal with the FOS process in detail in our companion article.
What happens if I want to sell my firm and I have given DB transfer advice in the past?
The run-off position needs to be addressed in the sale documentation. The acquirer will typically expect the seller to fund run-off cover for an extended period — six years at minimum, often longer where DB transfer activity has been material. The cost of run-off will reflect the firm's DB transfer history and any open notifications. Selling without addressing run-off does not extinguish the seller's liability for historic advice and can leave the seller exposed to claims that emerge after completion.
Are there still DB transfers being recommended in 2026?
Yes, but at a small fraction of the 2017-2018 volume. The combination of pension freedoms maturing, contingent charging ban, hardened PI market, and FCA scrutiny has materially reduced the volume of DB transfer recommendations from the post-2015 peak. Firms still operating in the space tend to be specialists with strong file management, dedicated PTS resource, and PI cover that explicitly responds to DB transfer activity. The market position for generalist IFAs doing occasional DB transfers is much harder than it was a decade ago.
Related guides
- IFA professional indemnity insurance — UK guide 2026
- IFA PI cover and FOS complaints
- IFAs sector page — speak to a broker
About Apex Insurance Brokers — Apex Insurance Brokers Limited is authorised and regulated by the Financial Conduct Authority, FCA firm reference 724952. Registered in England and Wales, Companies House 07014570. Last reviewed: May 2026.
This article is general information about Professional Indemnity Insurance for FCA-authorised personal investment firms with defined benefit pension transfer activity, and is not advice tailored to any individual firm's circumstances. For advice on your own position, contact us.
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