Some pension scheme trustees are asking their members to get financial advice for defined benefit (DB) transfers even if the pension is worth less than the mandatory limit.
Under the rules introduced with pension freedoms in 2015, savers with a DB pension higher than £30,000 are obliged to seek financial advice before transferring out and losing what are likely to be highly desirable benefits and a guaranteed income.
But Tim Eadon, a director at the independent financial advice firm Tuto Associates, revealed in a roundtable hosted by platform Nucleus on DB pension transfers that the limit was often lower in practice.
He said: "We are seeing this happen more and more as schemes insist consumers take advice for pension pots smaller than £30,000.
"The schemes are worried about liability and are hiding behind that now, saying members must take advice and they have to prove it too."
Other advisers contacted by FTAdviser confirmed this was happening.
Alistair Cunningham, financial planning director at Wingate Financial Planning, revealed he had received calls from savers told they were not allowed to transfer from both money purchase schemes without safeguarded benefits, and also those with safeguarded benefits worth less than £30,000.
He said: "The answer is that as there is no requirement to take advice, and if firm’s process and procedure is getting in the way of what an individual wants to do the ultimate recourse is to complain."
Paul Gibson, managing director of Granite Financial Planning, said scheme administrators sometimes over-use standard packs that may not apply to everyone.
He said: "If you are providing advice it is not really an issue, but if an individual does not wish to take advice then clearly this would represent a barrier."
Mr Gibson said even though he hasn’t had any client in this situation, pension scheme trustees "can’t make up new rules to suit them if it overrides statutory legislation".
The volume of DB transfers has been soaring as savers seek to take advantage of sky-high transfer values and to move their nest eggs into defined contribution (DC) schemes in order to access their cash using pension freedoms.
Concerns have been growing in this area, since according to data from consultancy firm Xafinity, scammers could be involved in one in 12 pension transfer requests.
Last year, the government announced new rules aimed to prevent fraud in pensions, which include tougher action to help prevent the transfer of money from legitimate pension schemes into fraudulent ones.
The Nucleus DB transfer panel also discussed whether the £30,000 threshold is appropriate for today’s market, since the impact of advice charges for those with relatively small pension pots is much greater.
Matt Connell, director of policy and engagement at the Personal Finance Society, said policymakers should put in place better guidance to help those with smaller pots rather than raise the advice limit.
He said: "Looking at pension freedoms as a whole, our feeling is the dial is still towards too much risk being taken on by consumers making their own decisions. The first step is designing a system so there is more default guidance.
"When you look at the issues involved, such as sequencing risk, running out of money and the lifetime allowance, throw any one of those factors into the mix and suddenly the whole thing is turned upside down."
Rachel Vahey, product technical manager at Nucleus, agreed increasing the advice requirement was not the answer, and that the focus needed to be on evidencing client understanding.
She said: "Perhaps we need a solution for people who’ve received guidance to say they’ve understood what they are doing.
"This could be getting people to read something, and sign a statement saying they understand, and that the risks have been explained to them."
maria.espadinha@ft.com
