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DB transfer pressure piling on from insistent clients

2 August 2017

High transfer values for final salary schemes are piling the pressure on advisers as insistent clients disagree with their recommendations, according to new research from Prudential1.

About 81% of advisers interviewed in the research reported an increase in requests for advice about transfers over the past year. And some 44% said that in the past year the number of insistent clients wanting to push ahead with defined benefit pension transfers despite recommendations against has been rising.

Half of advisers with insistent clients (51%) said they have helped with the transfer after their recommendation was over-ruled.

The biggest concern expressed by advisers about the impact of defined benefit transfers on consumers is the risk of giving up a guaranteed income for life, followed by the fear that clients will face unnecessary tax bills as a result.

Around 39% of firms said they were concerned about the risk of future liabilities if the advice they give is contested, while 17% said they are concerned the cost of professional indemnity insurance will rise.

Prudential’s research also found that only 17% of firms said they had the right FCA permissions in order to conduct transfers, 34% of others said they were considering increasing their permissions.

As to whether demand will continue, nearly half of advisers questioned said they do not believe transfer values will fall over the next five years. Although they flagged that high transfer values were not the only driver for transfer, citing increased flexibility as a major attraction for clients.

Commenting on the research, Stan Russell, retirement expert at Prudential, said: “Prudential’s research indicates that although the majority of defined benefit scheme members are wary of transfers, interest in transferring final salary pensions schemes has increased markedly over the past four years.

“Relatively high transfer values and the fact that pensions can be left as part of an inheritance are among the main reasons why clients might insist on a transfer, even if it is not in their best interests.

“This presents financial advisers with a dilemma. The valuable benefits of a defined benefit pension should not be given up lightly because it involves transferring investment and longevity risk from the employer to employee and is irreversible once complete.

“Advisers need to ensure that their clients understand the risks of a transfer – including longevity, market volatility, inflation, taxation – and ensure it is in the best interest of clients. They also need to check if the scheme offers a partial transfer before proceeding with a recommendation. If a client insists on a transfer, advisers must make sure they follow the process outlined by the Regulator.”

1 Research conducted by independent researchers Pollright in March 2017 among 201 financial advisers nationwide.


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