The Financial Conduct Authority should stop discouraging members to transfer out of defined benefit schemes, as pension freedoms mean a DB transfer would no longer leave members worse off "in most cases".
That is the view of Nigel Chambers, director of pension transfer technology firm CTC Software.
Mr Chambers argued that pension freedoms meant that as many as 40 per cent of DB members would actually be better off if they exchanged their DB income for a cash lump sum.
His view is in stark contrast to that of the FCA, which states on its website: "In most cases you are likely to be worse off if you transfer out of a defined benefit scheme, even if your employer gives you an incentive to leave."
Mr Chambers said the FCA's negative stance meant financial advisers, trustees and individuals were all put off going ahead with transfers, even though in his view they were often a good idea.
"In order to benefit from an inflation-proof [DB] pension, you've got to live well past the expectation of life," he said.
"So actually in terms of pure cash, half the people who are retiring out of DB schemes will get more money if they took it and just drew it down. The trouble is, you don't know which half."
He added that pension freedoms meant people retiring in debt could pay that debt off at a quicker - and therefore cheaper - rate.
However, he conceded that retirees opting to transfer out of a DB scheme would need ongoing financial planning to ensure their money lasted, which was currently expensive
The answer to this problem, he said, was robo-advice.
He said it was "not that difficult" to design a robo-advice programme sophisticated enough to offer that level of ongoing drawdown advice.
"That's my burning ambition, but it's a year or so away before we can do it," Mr Chambers said.
He also said the expense of mandatory advice on DB transfers - as well as the dearth of advisers willing to advise on DB transfers - was "putting a lot of people off".
He said CTC Software had estimated there were around 1,500 advisers capable off providing quality advice on DB transfers.
Martin Cotter, director of Lumin Wealth Management, agreed that pension freedoms had broadened the market for potential DB transfers, but said he would not have put the figure as high as 40 per cent.
He said each case should be looked at on merit, adding: “It’s not about the upside, it’s about the client’s capacity for loss.”
He argued that the FCA was right to be cautious, as promoting DB transfers could send a dangerous signal to advisers.
“The financial advice community can tend to move to where the money is, and it could be seen as easy earnings,” he said.
The FCA declined to comment.
james.fernyhough@ft.com
