Call for fresh guidance on defined benefit transfers

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Call for fresh guidance on defined benefit transfers

Calls for the regulator to give further guidance on defined benefit to defined contribution transfers have been renewed, with the managing director of tax adviser Crowe Clark Whitehill telling an audience in London the regulator needs to acknowledge “qualitative reasons” for switching.

Phil Smithyes said at an event this morning (2 June) that the firm plans to offer advice on transfers from defined benefit to money purchase schemes, “because we think we should [and] because it’s an important service to provide”.

He went on to say: “I’m always mindful to the regulator and our requirements and obligations to the regulator and their wisdom ten years down the line as opposed to from what I can see, [which is] quite a lot of common sense reasons for people to transfer.”

Mr Smithyes added that as a result of the complex nature of DB to DC transfers, the advice given would have numerous warnings and that the cost of advice may be “prohibitive”.

Responding to a question on the cost of advice in this area, which as a result of new rules from the regulator is now mandatory for DB transfers, he said: “The number of risk warnings and caveats and client declarations we are going to have in our reports are going to be extensive.”

He added: “It’s a very high risk area to provide advice in and we are trying to encourage the regulator to give greater guidance and to also have a better have a better understanding of the qualitative reasons for changing instead of the quantitative.

“So no longer just looking at critical yield, it’s more flexibility, tax, succession; but its a risky area we are involved in. I would expect the advice to be expensive.”

In a video interview with FTAdviser earlier this year, Mike Morrison, head of platform technical at AJ Bell, also called for the regulator to change its approach to DB transfer advice.

He told FTAdviser education editor Emma Ann Hughes: “I think there will be a lot of transfers and we need to get to an advisory regime where it is inclusive rather than exclusive so that people understand the implications of what they are doing.

“Quite often it is not the transfer that is the wrong thing it is what they do with the money afterwards. If they want to use their money then surely a transfer might be the right way to go but if they lose it then it may not be.”

Mr Morrison also said in relation to concerns over poor consumer decisions that the regulator needed to offer clarity on what advisers have to do to demonstrate suitability of their recommendations.

Last month the Financial Conduct Authority’s Rory Percival offered a three-point checklist for advisers dealing with so-called ‘insistent’ clients, resting largely on documenting the process and that the recommendation is being ignored.

Elsewhere, FTAdviser previously reported on a number of cases where advisers have been asked to write letters to unlock DB transfers where advice has not been given. The FCA warned providers to be alert and the Department for Work and Pensions said trustees should check claims of advice.

Beyond the issue of transfers, Mr Smithyes said that in his view, for uncrystallised fund pension lump sums, at the lower end value pension pots, he expected there to be quite a lot of activity now that the pension reforms have come into action.

“I think there was an expectation that there would be a huge rush and we certainly haven’t seen that, so watch this space.”

In terms of flexi-access drawdown, he said that the company had seen more activity post-Budget in this area, particularly with clients near or more over the lifetime allowance issues who have concerns that tax free cash may be withdrawn or restricted from pensions at some point in the future.

ruth.gillbe@ft.com, ashley.wassall@ft.com