Financial advisers have called for clarity on defined benefit to defined contribution pension transfer rules, as three quarters claim the current guidance is too cautious.
Research by Aegon found 71 per cent of the advisers the provider spoke to feel the regulations are leading to too much caution when advising on DB to DC transfers.
The findings were published in Aegon UK’s new ‘Adviser Attitudes’ report, based on polling 252 UK financial advisers between 21 - 27 June 2017, which pointed a big split in opinion on the issue.
More than 37 per cent of advisers said the regulatory guidance around how transfer advice should be given is unclear.
Although a similar percentage of advisers - 39 per cent - believe the advice rules are clear enough.
Steven Cameron, pensions director at Aegon, said: “The attractions of pension freedoms coupled with rocketing transfer values and growing concerns over the adequacy of DB scheme funding is fueling demand for advice from clients considering transferring out of DB schemes.
"However, this is a very complex area and advisers are calling out for refreshed guidance from the FCA on its expectations for DB transfer advice now we have pension freedoms.
“No two clients are the same, and transferring from a DB scheme and giving up a secure income for life is certainly not right for everyone. With an ever-growing demand from clients looking at this option, advisers are keen to see how the FCA will update its guidance following their consultation.
"Clear, updated guidance will allow advisers to offer their services with confidence without feeling they have to be unnecessarily cautious.”
Under existing pension freedom rules, people with DC pensions can access their pot any time from age of 55, choosing how and when to take income, with the option of taking their money all in one go if they wish, though taxed at the marginal rate.
In order to access the freedoms, those with DB scheme benefits need to transfer their money to a DC scheme, but in doing so, give up the security of a fixed income for life.
Some DB schemes offer members the option of a ‘partial transfer’ of a portion of their benefits, but this is not a statutory requirement and it’s offered by only a limited number of schemes due to administration complexity and cost.
The Aegon research found 73 per cent of advisers think that greater availability of partial transfers from DB schemes would be a positive development.
The data also found that 53 per cent of UK financial advisers see advice on DB to DC transfers as a key area for growth over the next two years.
The report, which tracks attitudes and concerns of the UK financial adviser market, found that around 73 per cent of financial advisers expect demand to increase for DB pension transfers over the next 12 months, with 30 per cent expecting a significant increase.
In the last two years more than 200,000 people have transferred £50bn out of DB schemes and financial advisers are clearly not expecting this to slow down.
The FCA’s consultation on ‘Advising on Pension Transfers’ closes on 21 September and Aegon UK believe there will be huge interest in how this translates into new guidance.
Gemma Siddle, chartered financial planner at Newton Aycliffe-based Eldon Financial, said: “I think the proposed update to the FCA guidance is certainly overdue and I will be pleased to see it come through. However, giving appropriate advice is not a ‘tick box’ exercise.
"Whatever the guidance says, it is only guidance and following it is not a fail-safe option.
"Any advice needs to be provided in a comprehensive manner with regard to the client’s own circumstances, objectives, risk profile, understanding and their plans for the future to ensure the best outcome for the pension member.
"Guidance helps with this process but it is in no way complete so I would caution any adviser against an over-reliance on this.”
