Just 1 per cent of DB transfers end up being moved to workplace pensions, despite the FCA now requiring advisers to benchmark funds’ proposed destination against a low-cost workplace pension option.
The figures, published by the FCA yesterday, are despite the fact many people who transfer out of a DB pension will be under state pension age and be active members of a charge-capped workplace pension scheme. The data has emerged as the regulator revealed figures showing a steep drop in DB transfers.
LCP partner and former pensions minister Steve Webb says the figure shows how big a change it will be for advisers to be expected to actively consider a workplace pension as a destination for transferred funds.
FCA data also shows a declining supply of advisers in the DB transfer market. In October 2018 there were 3,042 firms with DB transfer advice permissions contacted by the FCA. The most recent request in July 2020 was sent to 1965 firms with DB transfer advice, and the FCA now reports just 1521 firms with DB transfer permissions as at January 2021.
Webb predicts that given that the FCA data shows that most advisers used to charge for DB transfer advice on a ‘contingent’ basis and that contingent charging was banned with effect from 1st October 2020, this is likely to lead to further exits from the market.
Webb says: “It is a welcome trend that historically high rates of recommendations to transfer out of defined benefit pension schemes are now on the decrease. But the DB transfer market remains a source of real concern. The supply of advisers has fallen dramatically in recent years, and recent regulatory changes plus the cost of obtaining insurance is likely to reinforce this trend. Members are likely to find it increasingly difficult to source high quality impartial advice if left to their own devices. This data reinforces the case for pension schemes to appoint one or more high quality advice firms to help members make good choices about pension transfers”.