Sky-high defined benefit pension transfer values and increasing numbers of those with DB schemes reaching retirement age, are leading experts to forecast further growth in the transfer advice market, but fears around retrospective legislation linger.
Research conducted in March among 222 advisers who use investment platform Fundsnetwork, suggested 70 per cent of them expect this area could form a greater part of advisory businesses in the future.
However, of this group, 64 per cent were worried about retrospective legislation and how this could impact on them in the future.
And these fears appear to be off-putting for potential new entrants into the market.
Of the advisers who refer clients requesting DB advice to a qualified person, 74 per cent feel this area can only grow. Yet despite this, they have no plan to skill up to offer this advice themselves and nearly three fifths (58 per cent) cite their concerns around changes to future regulation.
Richard Parkin, head of pensions policy at Fidelity International, said: “With valuations riding high, DB schemes have been in the news as people look to explore whether transferring out is a good idea. For advisers, it’s clear they see a real opportunity to help their clients but are understandably concerned about unforeseen problems down the line.
“The regulatory risks around this business are high. While the FCA has provided some helpful commentary on this recently we’d like to see more from them on this subject.
“As well as giving advisers more confidence to step in and meet the sharp increase in demand for this service, a clearer regulatory position could also help reduce professional indemnity costs for advisers which are a significant impediment to many being able to offer advice at affordable levels.”
David Penney, director and chartered financial planner, Penney, Rudd & Winter is one IFA who does advise on DB transfers.
He said he is "very concerned" about the significant rise in the number of transfers since the pension freedoms were introduced.
"I do not think we need more regulation, as the regulations are clear. Perhaps there could be a clampdown on contingent charging, as that creates a clear conflict of interest.
"Most important is for advisers to try and calm the flurry of interest from deferred members, stirred up by the press and pension providers. There are similarities to the Securities and Investment Board pension review of the early 1990s, and that worries me. The pension freedoms and higher transfer values do not, in my view, justify the number of transfers that are being completed."
Andrew Pennie, head of pathways, Intelligent Pensions, said there is scope for further growth in the transfer market through corporate transfer exercises and partial transfer options.
“The transfer market is already subject to increased regulation with all transfers above £30,000 requiring specialist advice prior to a transfer being possible.
"We know the Financial Conduct Authority are planning to update the methodology for evaluating pension transfers and include the wider range of options and considerations in the new DC world. Most advisers should and will already be taking account of the increased options when giving DB transfer advice.
“One area that is of concern is insistent customers. We don’t facilitate a DB transfer on an insistent customer basis but are prepared to engage with the customer to ensure we have fully understood their objectives and they have fully understood our advice. However, we have seen some evidence of advisers using the ‘insistent customer’ badge as a means of completing DB transfer work and this is likely to be an area of increasing regulatory concern and focus.”
