Fidelity International has put in place strict policies on accepting defined benefit pension transfers, making demands far beyond government rules, as concern about the practice mounts.
If the value of the pension assets in a defined benefit scheme is more than £30,000, government rules require a pension provider ensure the potential customer has taken regulated financial advice before allowing the transfer to proceed.
It has not so far been required that the advice recommends a transfer takes place.
The Financial Conduct Authority on 21 June published new proposals for the treatment of pension transfer advice, which includes the requirement for a personal recommendation on whether or not to transfer.
But fund and self-invested personal pension provider Fidelity had already implemented its own, more onerous rules for Fidelity Personal Investing direct customers.
It requires customers seeking to transfer their defined benefit pension scheme to, for example, the Fidelity Sipp, must have received appropriate financial advice - irrespective of the value of their pension pot.
In addition, this advice must be “positive”, in that it includes a confirmation that the transfer is in the best interests of the adviser’s client.
“We have a pretty strict policy,” Richard Parkin, Fidelity International’s head of retirement policy, told FTAdviser.
“On the Personal Investing side we will not take any DB transfers – even under £30,000 – without advice. We think the £30,000 limit is a bit arbitrary.
“And we require that it is positive advice to transfer out of the DB scheme – not just any advice.
“[Without that] the customer will have to find someone else to do the transfer.”
Defined benefit pension transfers are under intense scrutiny from the Financial Conduct Authority and advisers, as demand has soared.
The FCA is currently investigating DB transfer suitability, and fears about future complaints have led many advisers to shun them.
However Phil Billingham, director at Colchester-based Perceptive Planning, said Fidelity's stance would only create further problems for people with smaller pots.
"There is a market failure as rules already prevent small pots from moving - the limit should be higher [than £30,000] - so Fidelity's stance will add more barriers.
"I suspect where this level of advice is given, Fidelity Sipp may not be the adviser's choice. So commercially their position may backfire
"Generally I dislike the gold-plating of rules. This seems to be for nobodies benefit, and creates more issues for clients with smaller pots looking to use their right to pension freedoms."
Figures from The Pensions Regulator found that up to 80,000 defined benefit pension transfers were made in the year ending 31 March.
Pension freedoms, introduced in April 2015, gave over 55 access to their entire pension pot, if it was in a defined contribution scheme.
For defined benefit scheme members to enjoy the same pension freedoms they must first transfer them into a DC scheme.
In addition, transfer values have been soaring in the 10 months since the EU referendum thanks to plummeting gilt yields.
According to Xafinity's most recent figures, average transfer values now stand at around £241,000 for a pension worth £10,000 a year at age 65.
That's £30,000 more than the same pension was worth on 1 June 2016, before the UK voted to leave the European Union.
Research by Royal London suggested the typical cash sum offered is between 25 and 30 times the value of the annual pension given up.
However, one in four advisers reported that most of the transfers that they deal with are worth 30 to 40 times the annual pension foregone.
On 21 June the FCA published new proposals on advice relating to pension transfers where consumers have safeguarded benefits, such as defined benefit schemes.
The proposed changes include requiring transfer advice to be provided as a personal recommendation, and replacing the current transfer value analysis with a comparison to show the value of the benefits being given up.
The regulator also revealed it plans to update its guidance on assessing suitability when giving a personal recommendation to convert or transfer safeguarded benefits, so that advisers focus on whether a transaction is right for a particular individual.
laura.miller:ft.com
