Defined Benefit  

MPs warned about pension transfer advice cowboys

MPs warned about pension transfer advice cowboys

There are some adviser firms taking advantage of the recent surge of defined benefit (DB) pension transfers which might not be giving the best advice to clients, a board member of the Personal Investment Management & Financial Advice Association (Pimfa) warned.

In a hearing today (1 November) at the Work and Pensions select committee in Westminster, Gary Bottriell said that attention should be focused on the quality of the professional providing advice.

He said: “There seems to be some commodity-type operations popping up that are probably finding wrinkles in the regulatory system, whereby they can do this [DB transfers] on an execution-only basis and they’ve got somebody with the qualifications to sign those certificates.”

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Last month, the Work and Pensions select committee launched an inquiry to investigate whether the pension freedom reforms are working.

With the introduction of pension freedoms in 2015, savers have been seeking to take advantage of the high transfer values of DB schemes and to move their nest eggs into defined contribution plans, which has pushed MPs to act.

Figures published by Mercer in April showed that as much as £50bn has been pulled from final salary pension schemes in the last two years.

Mr Bottriell said that the current market regulations are adequate for him, since he has “the qualifications necessary to sign the certificate, and I take that responsibility very seriously".

He said: "I won’t sign them if there isn’t a degree of understanding or the client doesn’t have the capacity to lose the money or take those risks."

Sir Steve Webb, head of policy at Royal London, warned that there is a risk in the extent to which the system is actually broadly working is understated, since “the majority of people with serious money and options are taking advice".

The Financial Conduct Authority (FCA) recently presented new figures on DB transfers.

The regulator found advice in more than half of the transfers where the recommendation was to move the retirement pot was unsuitable or unclear.

Sir Steve said: "Most of the advice is very professional, very good, and well done but what the FCA is finding is that there are cases where it isn’t. I fully support anything the FCA can do to make that advice good quality.

"We don’t want people coming back in five years’ time saying they were mis-sold."

Sir Steve argued that, however, more advice is needed and he is a supporter of advice vouchers.

He said: "The problem we have got is that advice is valuable, it is genuinely well received by those who take it, but people don’t value it.

“We have to get people through the door - literally and metaphorically - of advice, and I think a pilot of advice vouchers [would work].

“They are given an advice voucher, they get a first consultation for free or something like that, if they don’t want it that is fine, but if they realise that its valuable to them we have got them through the door."