The Financial Services Authority has uncovered inconsistent levels of advice given to members switching into personal pensions or self-invested personal pensions from existing arrangements.
The watchdog is planning to take action to improve the quality of advice following the review which discovered variable standards across a sample of 30 firms.
And it said several firms will be subject to enforcement investigation as a result of "significant failings" identified.
Some 500 cases where a member moved into a personal pension or a SIPP since the A-Day pension tax regime changes in April 2006 were investigated. Unsuitable advice was found in 16pc of the cases. However, this was unevenly spread across the firms reviewed.
The FSA said some were giving suitable advice consistently but some were giving unsuitable advice at "significant levels". A quarter of all firms were assessed as suitable - but in another quarter a third or more of cases reviews were deemed unsuitable.
The main causes of unsuitable advice were switches involving extra costs without good reason; recommendations that did not match the customer's attitude to risk and personal circumstances; failure to explain the need for, or put in place, ongoing reviews when these were necessary; and loss of benefits from existing pension schemes without good reason.
FSA director of retail policy and conduct risk Dan Waters said: "Switching into personal pensions and SIPPs from existing arrangements can be an appropriate move for many people, but this is a complex area of business where consumers rely heavily upon advisers.
"We are concerned at the variable results across firms. As a result, we are taking targeted action in relation to firms giving pension switching advice to deal with the risk of unsuitable advice on past and future sales, and to press all firms to meet the standards we expect."
In response to the report, Maggie Craig, director of Life an Savings at the Association of British Insurers (ABI), says: "This report shows that, in some cases, there have been shortcomings on SIPP customer and adviser information and product design.
"The pensions industry is committed to ensuring that customers and advisers have adequate and accurate information on pension products. Where more improvements are needed, ABI members will act swiftly to put them in place."
The FSA will undertake further assessments in the third quarter of 2009. It warned firms that fail to take steps where necessary will face further action.
The FSA said it will be writing to more than 4500 firms that advise on pension transfers about the results of the review.IFAonline
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