Defined Benefit  

Financial advisers don't agree with DB assumptions

Financial advisers don't agree with DB assumptions

Most financial advisers disagree with the current Transfer Value Analysis (TVAS) assumptions used to assess defined benefit pension transfers, a study has shown,

Figures from AJ Bell suggested that almost 80 per cent of advisers don’t believe that annuities remain the appropriate basis upon which to assess critical yield calculations after pension freedoms.

Mike Morrison, head of platform technical at AJ Bell, called the assumptions “hideously outdated” and called on the regulator to give advisers more clarity on defined benefit transfers.

His comments come as the FCA is expected to launch a major review of its rules tomorrow (21 June), and has been reviewing the processes of some individual advice firms, resulting in some ceasing to advise on DB transfers.

The AJ Bell study suggested that 80 per cent of advisers are still advising on these transfers.

“Urgent clarification is needed from the FCA on whether it plans to update the current guidance available to advisers,” Mr Morrison said.

He added that the regulator must set a clear timetable for reforming DB transfers, with the consultation covering three key areas.

The first is whether the assessment of DB to defined contribution transfers must start with the presumption that such a transition will not be in the client’s best interests, the second is the appropriateness of TVAS assumptions and the third is a clarification of the advice process and charges in this area.

The study found that two thirds of advisers will only advise on DB transfers as part of a full financial plan, and 99 per cent carry out a full attitude to risk assessment.

When it comes to charging, half of advisers questioned charge a percentage of the transfer value (contingent charging), 25 per cent charge a fixed amount and 16 per cent charge on a time/cost basis.

Mr Morrison said that advisers were being forced to operate in an “information vacuum” despite the fact that the volume of activity around DB transfers is higher than it has been for years.

“The ghost of the 1990s mis-selling scandal is clearly hovering all over this but that focused just on transfers that went ahead when they shouldn’t have done. 

"Avoiding that is just as important today, but we now face an equally problematic situation – transfers that should go ahead but don’t because of fear of regulatory sanction. That is also a poor customer outcome,” he said.

Financial adviser Ashley Clark, from Needanadviser.com in Richmond, said that he believed that the TVAS were “reasonable”.

However, he said that advising clients about the suitability of DB to DC transfers is as much about soft facts such as hereditary conditions and family circumstances as about pension transfers.

“The assumptions are set by the FCA and we follow them,” he said. “But it is important to consider all of the circumstances before a decision is made.”

rosie.murray-west@ft.com