Yahoo Finance ‘Dangerous’ pension transfer advice vacuum could be created, experts warn
A “dangerous” pension transfer advice vacuum could be created as the market comes under strain, experts are warning.
Scheme members looking for affordable transfer advice could be left stranded, and regulators and pension schemes should do more to prevent a shrinking market. This is according to the joint research from consultants LCP (Lane Clark & Peacock) and insurer Aviva.
The research involved responses from more than 200 advisers currently or recently active in giving defined benefit (DB) pension transfer advice.
DB pensions, such as final salary schemes, are often described as “gold plated” as they promise people a certain income when they retire.
In-depth interviews were also carried out with some advice firms which are regularly appointed by pension schemes to provide advice to members.
Those behind the research said the Financial Conduct Authority (FCA) has already said the number of advisers with permission to provide DB transfer advice halved from just over 3,000 in autumn 2018 to around 1,500 at the start of 2021.
The new research suggests that even among those still active in the market, around one in three were unsure that they would still be providing transfer advice in a year’s time or had already decided to pull out.
Financial risks associated with providing transfer advice was among the reasons firms were considering pulling out.
Partly in response to challenges for members in obtaining affordable advice, growing numbers of schemes are appointing independent financial advice firms for members to use if they wish, according to the research.
In many cases this is provided either free of charge to pension savers as it is paid for by pension trustees or employers, or considerably cheaper than if members had sourced the advice themselves, the report said.
Health concerns have become an increasingly important reason why people are considering transferring their pension compared with when a similar survey was conducted three years ago, the report suggested.
The coronavirus pandemic has prompted some members to consider what would happen to their pension rights if they died.
Alistair McQueen, head of savings and retirement at Aviva, said: “Individually sought advice continues to be the backbone of the DB transfer advice market, but it is a market under strain.
“The supply of quality ‘high street’ DB advice is in retreat, leaving many individuals isolated. The industry and its regulators must work together to ensure that those seeking DB advice are not left stranded and exposed. Nature abhors a vacuum, and this advice vacuum is dangerous.”
Report co-author Sir Steve Webb, a former pensions minister who is now a partner at LCP, said: “It is becoming increasingly difficult for members to source affordable transfer advice and this means that schemes and regulators need to do more.
“Growing numbers of pension schemes are now teaming up with one or more carefully selected advice firms to offer free or subsidised advice on pension transfers and wider pension issues. Given the challenges which members are facing, the pressure on trustees to do more to support members will only grow.”
An FCA spokesperson said: “Too many firms have provided poor defined benefit pension transfer advice, which has led to insurers increasing premiums to reflect the risk in this market. We have intervened to protect consumers from being wrongly advised to transfer out of their defined benefit pension, as most consumers would be best served by retaining a pension that provides a guaranteed level of income in retirement.
“As a result, firms unable to meet our standards and afford the insurance to cover this higher risk advice service have exited the market. Other firms continue to provide high quality advice to consumers with appropriate insurance in place and we will continue to closely monitor this market.”
