Defined Benefit  

Pension trustees slash transfer advice cost by 75%

Pension trustees slash transfer advice cost by 75%

When a pension scheme appoints a financial adviser to assist their members with a pension transfer, the cost of advice can be slashed by up to 75 per cent, specialists have revealed.

According to Stewart Patterson, director of retirement at consultancy firm Willis Towers Watson, this is because, as the adviser's clients are all in the same defined benefit (DB) scheme, most of the work about the plan can be streamlined, and result in cost efficiencies.

He said: "If an individual contacts the financial adviser directly, and wants to receive advice from a defined benefit to defined contribution transfer, it would probably cost £3,000 to £4,000 for that advice, because the financial adviser has to do a lot of work to understand the specifics of the scheme that the member is currently in.

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"In the exercises where the financial adviser is appointed by a defined benefit pension scheme, the per head cost for that same advice process is normally around £1,000, which is around 75 per cent lower.

"It is because that first piece of work understanding the specifics of the scheme only needs to be done once."

Consultancy LCP has experienced an even lower price pension transfer advice cost per individual.

Clive Harrison, partner at LCP, said: "In our experience, the majority of members do get a much better deal when the employer or scheme has appointed a financial adviser and we have many clients who have done just this.

"An initial setup cost would normally be paid but then the advice charges can be as low as £500 flat fee per case.

"This compares to a typical 'high street' IFA charging £3,000 or more (often calculated as a percentage of the transfer value) and possible ongoing charges on top."

The number of trustees and companies that are hiring IFAs to give advice to their members in increasing, as they are becoming more concerned about the quality of the advice after the British Steel Pension Scheme (BSPS) transfer scandal.

Since March 2017 until February 2018, BSPS trustees processed 2,600 pension transfers equating to a total value of £1.1bn.

FTAdviser reported in November that several steelworkers appeared to be transferring out their pensions after being lured by cheap deals by unregulated introducer firm Celtic Wealth Management & Financial Planning, which then referred the clients to advice firm Active Wealth.

Several financial advice firms have stopped providing DB transfer services after intervention from the Financial Conduct Authority (FCA).

According to recent research from Aon, one in 10 DB schemes in the UK has chosen to appoint an IFA for their members.

Mr Patterson explained that for trustees, appointing an adviser gives them comfort that "members are being guided towards someone who has been through a robust selection process, to make sure that it is an adviser who is credible, has the right arrangements in place, and the right governance structures”.

Keith Richards, chief executive of The Personal Finance Society (PFS), confirms that this practice results in a lower per-client average advice fee.