Lack of DB transfer specialists is risking consumer detriment, says ACA
30 October 2017
The Association of Consulting Actuaries (ACA) has raised concerns about the lack of financial advice for the rising number of people requesting defined benefit pension transfers.
The latest results of the ACA Pension Trends Survey found that 61% of employers said scheme members were having difficulty finding advisers prepared to advise on pension transfers.
The report, which surveyed 466 employers, showed that nearly half of the respondents are seeing over 5% of their members request a transfer, while a third reported over 10% of their members wishing to transfer (see chart below).
However, the actual percentage of people transferring out was much lower, with just 16% of employers reporting completed requests for over 5% of their members.
The ACA said that over the last two years, it has been estimated that over £50 billion has been withdrawn from defined benefit schemes, with the average transfer now in excess of £250,000.
The survey findings, the ACA said, underscored “mounting concerns” that high transfer values (due to low interest rates) are stimulating member interest in cashing in DB pensions. In addition, the flames were being “further fuelled” by concerns over scheme deficits, with recent publicity suggested three million of the UK’s defined benefit scheme members may only have a 50:50 chance of receiving full benefits.
ACA Chairman Bob Scott said the results of the survey confirmed the ongoing shortage of IFAs prepared to advise in this area and for those willing to give advice, some form of standardisation in questions should be introduced to help scheme members.
He said: “There are concerns about both the availability and appropriateness of the regulated advice available to DB scheme members. Other research suggests that only around half of those who took advice to transfer were properly advised. Of the other half, one third of recommendations were unsuitable and the remainder were unclear.
“This is disappointing but isn’t surprising. DB pensions are complex and varied and their value is not well understood.
“Comparing a DB pension to uncertain post-transfer investment returns and income choices is fiendishly complex.
“However, many schemes are additionally noting to our members that where IFAs are providing advice, the questions they pose during the transfer process are varied and time consuming. The quantum of enquiries and differences in approaches is posing difficulties for administrators and pushing up administration costs.
“Standardisation in the questions asked would seem to be a sensible step and this may be an area where the FCA could act swiftly to help all concerned.”
Steven Cameron, pensions director, Aegon described the report as a “stark reminder” that demand for advice on defined benefit transfers continues to significantly outweigh that of supply, which could have a detrimental effect on consumers.
He said: “With the potential for gilt yields to rise and transfer values to fall, it’s vital that this is addressed urgently so individuals can get the advice they need to consider this important decision.
“The FCA recently consulted on an updated approach to DB transfer advice, reflecting current market conditions and the pension freedoms. We hope the FCA will now move quickly to publish new guidelines, updating and clarifying its expectations so that many more advisers can offer advice with confidence on ‘best practice’.”
Pension transfer requests from defined benefit schemes and completions
Click on image to enlarge
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