Personal PensionJul 23 2014

Trustees could provide DB to DC transfer advice

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Trustees should help with the funding and quality of advice to transfer out from a defined benefit pension scheme following the government making it mandatory for all consumers to take regulated advice if they wish to transfer from a DB alternative, commentators have said.

Earlier this week, the chancellor introduced additional safeguards to help support individuals to make more informed choices on pension transfers.

On the same day (21 July), the Financial Conduct Authority warned that advisers are likely to have to pay redress to consumers who were given bad advice on their ‘enhanced transfer values’.

The regulator’s thematic review into financial advice to people who were offered ETVs to incentivise them to leave their employers’ DB pension schemes identified a risk of customers losing out on retirement income due to poor advice.

Chris Fletcher, senior manager at Xafinity Consulting, told FTAdviser that he has concerns over the depth of quality in the IFA market, especially since there may be a high volume of similar work coming in.

He said: “I wonder whether scheme trustees could help provide this advice to members, funding a panel of carefully selected financial advisers to make sure they got the best outcomes.”

Calum Cooper, partner and head of trustee DB at Hymans Robertson, argued that trustees’ primary responsibility is to ensure that members receive their promised pensions,

He said: “So, it’s not obvious that trustees should take responsibility for paying for advice for members who chose to transfer out of a scheme and so change their benefits.”

“In fact, this would reduce the assets available, and so the security, for members that remain in the scheme unless the sponsor chose to meet the costs as they arose, which could be significant – potentially several hundreds of pounds per case.

“However, in terms of protecting members that may wish to take a transfer, I would expect trustees to take a keen interest in ensuring the quality of not just the advice received but the communication with members about the options available to them.”

Simon Taylor, a partner at Barnett Waddingham, believes that trustees should always be involved in the selection and competency assessment of the IFAs in any transfer exercise.

He said: “The appointment should be a joint decision by the trustees and company (even though the company bears all the costs) and in all of the exercises I have been involved with this has been how it has worked.”

Actuaries and administration specialists Spence and Partners also suggested that the government’s announcement on the continued permission for DB to DC transfers should be a catalyst for trustees and scheme sponsors to work more closely together.

Marian Elliott, head of trustee advisory services at Spence, said: “Trustees should be prepared to collaborate with employers on any de-risking exercises that take place and consideration should be given to whether scheme design is affected by the announcements,” stated

Alan Collins, the firm’s head of corporate advisory services, added: “More individuals have been contacting administrators to request transfer quotations since the proposals were first announced in the budget, so it is important that everything is managed correctly by the employer and scheme from the outset.

“The time is right for employers to work with their trustees to make sure that this advice is on tap for all members making decisions in relation to their scheme benefits.”