Almost half of those currently on DB transfers say they are unsure whether they will still be active in this market in a year’s time, according to new research.
More stringent regulation and the increased cost of personal indemnity insurance is expected to mean fewer high-quality impartial advisers will operate in this area, according to a research paper by Royal London and consultants LCP.
It says this could have a serious impact on members who need access to advice, and is calling on schemes and regulators to address this issue.
LCP says there are concerns this could push those looking to access pension funds – particularly in times of financial stress – towards less scrupulous advisers.
The research – conducted among more than 700 advisers – found that three quarters of those that had stopped advising on DB transfers cited PI costs as a key issue.
It also found that some advisers charging on a contingent basis were considering leaving the market when the FCA’s ban on this charging structure comes into force.
The report says that many advisers felt that FCA’s position on DB transfers was uncertain and some were fearful that a wholesale review of past cases was on the cards. As a result respondents said that giving DB transfer advice was now outside the ‘risk appetite’ of their firm.
The research paper said that in the past five years there has been a surge in the number of people looking to transfer their pension rights from a DB scheme to a DC arrangement.
Between April 2015, when pension freedoms were introduced and September 2018 nearly a quarter of a million people took advice on a DB transfer.
One response to the challenges in sourcing affordable high quality advice has been for schemes to appoint one or more advice firms to offer advice to members. In this model, the scheme will often pay a significant sum to an advice firm to set-up a process for advising members and will subsidise the advice costs to members. The paper gives case studies of two pension schemes, that have gone down this route.
The paper calls for greater support for the advice market, including action to reform the system of PI insurance. It is also encourages more schemes to offer ‘partial’ DB transfers as an alternative to the ‘all-or-nothing’ transfer option which many members currently face.
Royal London’s senior pensions development and technical manager Justin Corliss says: “Deciding whether or not to transfer out of a DB pension is a huge decision, and members should be able to access affordable, impartial advice.
“Unfortunately, the costs of obtaining PI cover and constant regulatory change have led many advisers to leave the market or to consider doing so. Urgent action is needed to make sure that all members can access the expert advice that they need”.
LCP partner Steve Webb, partner adds: “Pension schemes have an important role to play in ensuring that members are fully informed about their options and can access high quality advice. Growing numbers of schemes have chosen to appoint one or more advice firms to support members as well as subsidising the costs of advice. Members benefit from the reassurance that the scheme has undertaken due diligence on the advice firms involved as well as from reduced advice costs where the scheme is making a contribution”.
