Advisers risk opening door to bad pension transfers

Advisers risk opening door to bad pension transfers

Advisers run the risk of accidentally allowing people to carry out defined benefit transfers, Alistair Cunningham has said, with the chartered financial planner telling peers to often avoid advising on the area altogether.

The Wingate Financial Planning director was speaking at the Personal Finance Society’s Festival of Financial Planning yesterday (8 November).

He justified his comments by saying the rules on DB transfers are flawed, because while a client has to seek advice if the value of the pension is more than £30,000, they do not need to seek advice specifically in favour of the transfer.

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Mr Cunningham said: “In giving the advice, even if the advice is you don’t think they should transfer out, that client has satisfied the requirement and can transfer out, which is bonkers because you have opened the door to an outcome you think is suboptimal.

“If a doctor thinks a prescription is against your best interests, would they facilitate an outcome they think is not optimal?

“Effectively in giving the advice and saying don’t transfer, you have left a blank prescription on the desk and someone could facilitate that advice with a third party.”

Mr Cunningham said his firm triages potential DB transfer clients before providing them with advice based on their circumstances.

He said there were two “million dollar questions” which he asks those approaching his firm seeking a DB transfer.

Mr Cunningham said: “The first is to ask, in their words, based on the presumption it is not in most people’s interests, can they explain to me why they are not most people.

“What people perceive to be a substantial difference, most often isn’t.”

He said the second question what to establish what a client would do if he recommended against the transfer.

If the potential client says they will transfer anyway, Mr Cunningham said a “little red light goes off”.

Mr Cunningham also warned advisers against recommending a transfer on the basis of the financial strength of a company or its pension scheme.

He said: “There is not enough data or information we can look at to assess what the future viability of a pension is.

“I know there will be ambulance chasing lawyers going around Port Talbot soon asking if people were advised to transfer out.”

A poll by Old Mutual International earlier this year revealed advisers expect demand for defined benefit transfers to keep increasing in the next 12 months.

The survey of 210 financial advisers from across the UK, Europe, Middle East and Asia showed 42 per cent of them have seen an increase in demand for DB transfers in the past 12 months, and 35 per cent expect demand to continue to increase in the next 12 months.

UK advisers have experienced the biggest growth in demand, with 83 per cent saying they had seen an increase in the past 12 months while 54 per cent said they had seen a "significant increase" in demand.

Meanwhile 71 per cent of UK advisers are expecting demand to increase even further in the next 12 months.