Royal London has called for the current defined benefit (DB) transfer threshold of £30,000 to be increased to at least £50,000.
This was one of the firm’s recommendations in its response to the Financial Conduct Authority (FCA) consultation on pension transfer advice, which closes tomorrow.
Current rules mean DB savers who want to transfer out of their schemes must seek regulated advice if the value of their pot is more than £30,000.
The pension provider said it was common for DB schemes to offer a multiple of up to 30 times the annual pension as a cash equivalent transfer value (CETV), implying an advice requirement on pensions of around £1,000 a year or just £20 a week.
"This seems disproportionate when full transfer advice can cost several thousand pounds and take a big chunk out of the pot," Royal London said.
"The new higher threshold should be based on data about the cost of pension transfer advice on smaller pots and on the size of typical DB pots that are considered for transfer, but we think an increase to at least £50,000 would give more consumers the option of transferring relatively modest pots without incurring disproportionate costs," it added.
Royal London said the current £30,000 threshold should be significantly increased, with a new requirement to obtain factual guidance below the new threshold.
Sir Steve Webb, director of policy at Royal London, told FTAdviser that for very small pots, the requirement to take advice can mean sensible transfers do not take place or a large chunk is taken out of a small pot.
He added: "An increase in the £30,000 threshold would strike a better balance between the cases where advice is essential and appropriate and those where a requirement to access factual information and guidance would be more appropriate."
Sir Steve was pensions minister when the requirement was introduced and explained that, at the time, there was no data to identify what would be the most appropriate threshold.
He said: "When the threshold for advice was originally set at £30,000 it reflected prevailing views about the borderline between what was a ‘trivial’ amount of pension savings that could be taken as a cash and a more meaningful pot.
"But now we have seen how pension freedoms are being used and the growing demand for pension transfers, a significantly larger threshold now seems appropriate."
Royal London and Sir Steve have not been the first to call for an increase in this threshold.
Michelle Cracknell, chief executive of The Pension Advisory Service, said the £30,000 requirement was "a very blunt instrument" and represented a "market failure".
She said: "If I had a pound for every customer who has phoned us up to say 'how can I get around taking regulated advice because my pot is £32,000 I would have a huge pension fund."
Paul Gibson, managing director of Granite Financial Planning, did not agree with Royal London’s proposal.
He said: "A provider calling for an increase in the transfer value before a requirement for advice concerns me.
"They will happily accept transfers but bear no responsibility for the transfers if things go wrong or make adequate provision to the [Financial Services Compensation Scheme] FSCS.
"In an ideal world, clients would be able to do whatever they like with ‘their’ pension fund, however, we do not live in an ideal world and we have seen poor examples of DB advice already.
"I don’t think this proposed change is beneficial at this moment in time."
maria.espadinha@ft.com
