Personal Pension  

Transfer values are creating insistent clients

Transfer values are creating insistent clients

Equiniti’s annual retirement survey has found that 60 per cent of industry professionals believe that when a £10,000 a year defined benefit pension can be converted into a £213,000 transfer - as per the Xafinity Transfer Value Index - individual members will increasingly take and ignore advice, forcing defined contribution transfers.

The research was carried out during June with product and service providers, retirement planning consultants, employee benefit consultants, regulators and industry bodies being polled on transfers and 50 responses received in total.

When asked if the £30,000 enhanced transfer value threshold for a DB to DC transfer to proceed without advice was a valid method of control to protect members, 54 per cent agreed, or strongly agreed, 26 per cent were undecided and 20 per cent disagreed.

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Those surveyed also warned that the risk of scams will increase, with 92 per cent agreeing - and half strongly agreeing that the rise was due to the recent pension freedoms.

Nigel Pearce, life and pensions director at Equiniti, said while some members might wish to press ahead with DB to DC transfers in the face of advice to the contrary, it remains to be seen to what extent any adviser or provider would be prepared to become involved with such a transfer.

He said: “It may well be that fear of future criticism, or even litigation, will mean that advisers will choose not to handle this business.

“We also have to hope that, in its enthusiasm to accommodate individuals looking to take advantage of the new flexibilities, the government does not do away with protections that are needed now more than ever to protect those same individuals from scammers.”

David Trenner, technical director Intelligent Pensions, pointed out that the transfer value depends on the age of the member as well as increases to the pension before and after retirement, adding that the example given was unhelpful.

“For a client aged 65 with a fully index-linked pension, which includes a 50 per cent widow’s pension, £213,000 would only buy £6,420 per annum.

“But if the same client was only 55 now, then assuming 5 per cent annual growth after charges, the pension would be about £10,500 per annum, and if he was 45 it would buy about £17,000 per annum at 65.”

He also stated that the threshold is fine, providing the trustees do their job properly. “This involves far more than just asking for an FCA registration number and a squiggle before effecting the transfer.”

Earlier this month, the Financial Conduct Authority asked the industry for ideas on which regulatory barriers could be removed to tackle the issue of those who go to an IFA to facilitate a DB transfer, but are insistent on taking their pot, regardless of advice to the contrary.

The regulator acknowledged there was still concern about the regulatory backlash of helping these ‘insistent clients’, with many firms simply refusing to accept such business, to the detriment of the ‘freedom and choice’ reforms.

In June, the FCA published three step guidance on the matter, but many advisers are still concerned over the lack of clarity on how the ombudsman might treat any claims made in the future.