Providers have warned that they are between a rock and a hard place regarding defined benefit transfer requests, as while they need to ensure the saver has taken regulated financial advice, they are under no obligation to find out what the advice was.
From earlier this month, anyone who wishes to transfer out of a DB scheme and into a defined contribution scheme must obtain regulated financial advice, unless the pot is worth less than £30,000.
FTAdviser asked providers if they would carry out the transfer despite the consumer being advised against it, with a number of them stating that while they need to ensure regulated advice has been received, they are not under any obligation to check what the advice was.
A spokesperson for Aegon told FTAdviser that while there are new requirements around when an individual must take advice before transferring, and the Pensions Schemes Act introduced requirements for the scheme managers and trustees to make certain additional checks, there is no regulatory requirement on any party to check that the individual is acting in line with that advice.
“As an industry, we need to strike a balance between protecting customers from taking actions they might later regret and stopping them accessing the new freedoms the government has introduced,” the spokesperson stated.
“In the new world, customers need to be sure they understand the implications of their decisions. If they choose to act against advice it’s important they understand they are taking this decision on their own; we’ll be keeping this situation under review and expect the FCA will do likewise.”
Aviva, Friends Life, Phoenix Life and AJ Bell will all accept the transfers, with a spokesperson for Aviva and Friends Life emphasising that “what that advice entails is strictly between the customer and their adviser”.
A spokesperson for the regulator told FTAdviser: “The legislation only requires providers to check that advice has been taken.”
Chris Wiscarson, chief executive of Equitable Life, emphasised that it acts on the instructions of the scheme trustees and does not deal directly with individual members, therefore the trustees have to ensure that financial advice has been received.
“What is important is that we would not typically know the nature of the advice (nor may the trustees), that being confidential between adviser and customer.
“Our dilemma would be if we were told that IFA had advised against transfer, but the trustees nevertheless instructed us to proceed. Contractually we would have to act on the trustees instructions, but we would push back initially to check that both trustees and customer alike were aware of the risks.”
When questioned further, Mr Wiscarson added that he would be “surprised” if the trustees had pushed aside advice against a transfer.
“But if they did set it aside and trustees insisted on exercising their contractual rights to transfer, I think we would have to accede. We would definitely take legal advice were that circumstance to arise as we would not lightly allow policyholders do something that was demonstrably inadvisable.”
Martin Tilley, director of technical services at Dentons, said if the advice goes against the transfer, the provider will “consider the transfer on individual circumstances”.
“This will be based on a number of things, including but not limited to, the reasons the client can put forward as to why they think the transfer is in their best interests and what they intend to invest in (we reserve the right to refuse to accept any investment that does not meet or acceptance), etc.”
However, several providers told FTAdviser they would refuse such requests if the advice went against a transfer, including Royal London, James Hay, Old Mutual, Standard Life, Alliance Trust Savings, Legal and General, Mattioli Woods, Scottish Widows, Prudential and Zurich.
A spokesperson for Standard Life said they would not accept DB transfers from customers where they are advised not to transfer, adding: “We will review this once the regulatory position on transfer advice becomes clearer; people cannot do transfers via the online system.”
Both L&G and Mattioli Woods said that their starting position would be ‘no’, however they may be swayed if there were “exceptional circumstances”.
Adrian Boulding, pensions strategy director at Legal and General, said: “Generally we wouldn’t go ahead, otherwise it is too much risk as the consumer is doing something that he had been advised against, and whoever is involved in that situation of encouraging consumers to go against advice could be held for redress later on.”
A spokesperson for Zurich added that there is a high risk that a DB to DC transfer would significantly harm a customer’s financial well being.
“Therefore, in order to protect our customers’ financial interests, it is not our current policy to permit transfers that go against the explicit advice of an adviser.”
donia.o’loughlin@ft.com
