Clashes over defined benefit transfer advice for all

Legally, clients wishing to transfer out of a final salary pension need to seek financial advice if the benefits they are giving up are valued at more than £30,000.

But FTAdviser has learned some trustees will ask for adviser sign off regardless of the pot size and so will the receiving schemes.

Strictly speaking the responsibility for checking advice has been given lies with the ceding scheme. But providers accepting the transfer have also taken it upon themselves to check.

Of the 13 providers approached by FTAdviser six confirmed they would ask for advice on transfers in regardless of pot size. 

Two did not respond in time for publication and four said they would not go beyond the statutory requirement of requiring advice on pots valued at more than £30,000. Prudential accepts business from advisers only, so transfers will always be advised.

Asking for advice should create a safer environment for the client but it also means they will have to fork out the extra cost, which, for the type of bespoke service the regulator is looking for, can add up to more than a thousand pounds.

Aviva thought customers acting without advice might find it difficult to assess whether the transfer value represented fair value.

A spokesman for the provider said: "Our reason for not accepting transfers from DB schemes where no advice has been given is that there are complex trade-offs between a guaranteed income for life and a cash transfer value, making advice necessary."

Phil Brown, head of policy at LV, said: "It is arguably more important in this situation as those with smaller pension provisions really cannot afford to get it wrong."

But Steve Webb, former pensions minister now director of policy at Royal London, said asking for advice to be given on small pots was "unnecessary and unhelpful" and could cause consumer detriment.

He said: "If you assume that people are being offered a typical '30 times annual pension' as a lump sum, then a sub £30,000 pot is probably a pension of less than £1,000 per year or less than £20 per week. 

"It is hard to see why someone who wants to swap a £20 per week pot for a lump sum should be forced to pay hundreds or thousands of pounds for financial advice."

Advisers appeared split on the issue, though most said they had not come across this problem with their clients.

Paul Stocks, financial services director at Dobson and Hodge, warned apart from extra cost, the approach also meant providers were muddying the waters over responsibility carried by the trustees and the receiving scheme.

He said: "I suspect this is something The Pensions Regulator should look to resolve or clarify. 

"In a world of cost scrutiny, we have seemingly got situations where members are being forced to either sit tight or pay hundreds of pounds to transfer their small defined benefit funds even though the regulation doesn't require it."

Q: Do you ask for evidence of advice on transfers into your DC schemes for sub £30,000 pots?

Alistair Cunningham, financial planning director at Wingate Financial Planning, said: "Many providers won't accept transfers without advice. I have no issue with this.

"It is better than the opposite case we have seen with some Sipp administrators, where some very shady transfers and investment recommendations have happened.

"That they are now being held to account is probably what is putting some firms off taking any transfer unless it is positively advised."

But David Penney, managing director at Invest Southwest, said: "This is simply an insoluble problem."

He said he appreciated why trustees or schemes may wish to step in to protect savers but the freedom and choice given to savers by the government had to be respected.

He said: "It is not the trustees' [or providers'] place to step beyond their obligations and indeed this stance would not stand up in court."

The Financial Conduct Authority (FCA) did not want to comment on the issue, stating responsibility for setting the legal limits on pension transfer advice lay with HM Treasury.

HM Treasury told FTAdviser it had a clear position on the limits set and it was for the Financial Conduct Authority (FCA) to comment on whether there were problems.

The FCA said it was a commercial decision for schemes if they wanted to go beyond the legislative requirement.

Meanwhile, a spokesperson for The Pension Regulator said: "Our primary concern is that defined benefit scheme members and their advisers have all the information they need to make an informed decision about what is in the members' best interests.

"We are working closely with the FCA to achieve this."

carmen.reichman@ft.com