“Individually requested advice continues to be the backbone of the DB transfer advice market, but it is a market under pressure.”
A new report has found that access to financial advice regarding pension transfers will continue to decline unless action is taken by regulators and pension schemes.
The research, jointly conducted by consultants LCP and insurer Aviva, included a survey of financial advisers, with responses from more than 200 advisers currently or recently active in providing DB transfer advice.
She also conducted in-depth interviews with seven consulting firms regularly mandated by pension plans to advise members.
Research by the FCA had previously shown that the number of advisers authorized to provide DB transfer advice has halved from just over 3,000 in fall 2018 to around 1,500 in early 2021. But this new survey suggests that even among those still active in the market, around 1 in 3 were unsure whether they would still provide transfer advice in a year or had already decided to opt out. Among this sample of “large” financial advisory firms, the main reasons cited for opting out were the cost and availability of obtaining professional liability insurance, the financial risks associated with providing transfer advice. and the perceived hostility of regulators to DB transfers. Some companies have also cited the abolition of “contingent” billing in October 2020, which means members must now pay for advice whether or not they are recommended to transfer.
Partly in response to the difficulties members face in obtaining affordable advice, a growing number of plans are appointing IFA companies that members can use if they choose. In many cases, this advice is either free (i.e. paid for by the trustees / employers) or considerably cheaper than if the members were self-sourcing. For this article, LCP interviewed seven such IFA companies who, among themselves, provided advice on more than one in five DB transfers in the past year.
All of these “plan appointed” IFAs said they saw growth in their business, but the exact provisions varied from plan to plan. In some cases, the plans made counseling available to members free of charge, while in others, the plan paid for setting up the arrangement and members then paid the “marginal” cost of the arrangement. provision of advice. It was still generally much cheaper than if they obtained the advice themselves.
Most of the scheme’s advisers said the new rules requiring them to compare the destination of transferred funds with a low-cost occupational pension had little effect; many of those who are transferring are already retired, so an occupational retirement would not be relevant, while large advisers can already negotiate good terms on the transferred funds, meaning that occupational retirement does not necessarily have to be. a cost advantage. Advisors also felt that post-retirement offers for those transferring their funds into a company pension plan were often relatively basic, especially for those with higher transfer values.
Alistair McQueen, Head of Savings and Retirement at Aviva, said: “Individually requested advice continues to be the backbone of the DB transfer advice market, but it is a market under pressure. The supply of quality “high street” DB advice is on the decline, leaving many people isolated. The industry and its regulators must work together to ensure that those seeking advice from DB do not get stuck and exposed. Nature abhors a vacuum, and this vacuum of advice is dangerous.
Steve Webb, partner at LCP and former Minister of Pensions, added: “It is becoming increasingly difficult for members to find affordable transfer advice, which means that plans and regulators need to do more. A growing number of pension plans are now partnering with one or more carefully selected consulting firms to offer free or subsidized advice on pension transfers and broader pension matters. Given the challenges members face, the pressure on directors to do more to support members will only increase. “