A third of defined benefit schemes have appointed or are considering appointing an IFA to stop members from making poor decisions, according to XPS Pensions Group.
Research by the pensions consultancy out today (October 10) found DB schemes were increasingly offering support to their members with regards to their retirement planning with concerns centring on transfers out.
XPS Pensions found 10 per cent of its pension scheme clients already work with an IFA and another 25 per cent are considering appointing an adviser.
Simon Reddish, senior consultant and head of IFA selection team at XPS Pensions Group, said: “Freedom and choice has been a game changer for the pensions industry. We are seeing a growing number of trustees and sponsors looking to provide more support to help their members make the right decisions for their retirement.
“The increased level of knowledge and access to professional advice means that trustees and sponsors are in a much better position than their scheme members to select an IFA, and I think doing this can meaningfully improve member outcomes and protect schemes.”
But earlier this year (February 20), consultancy firms LCP and Willis Towers Watson warned there were fewer than 10 advice firms in the country suited to be hired by pension schemes, mainly because of the scale of the task and the fact schemes don't approve of contingent charging.
XPS stated for members to get the most appropriate advice DB schemes need to ensure they are given the option of choosing a low cost arrangement which is not riddled with high investment or advice fees.
There should also be no commission or other incentives paid to the adviser for promoting specific products and they must be independent, it stated.
To address the issue of a lack of suitable advisers, there should be no contingent charging structures, it stated.
Contingent charging means a client only pays for the advice if they go ahead with the recommended course of action. In the case of pension transfers, the adviser won't get paid unless the pension is transferred.
The practice is on the verge of being outlawed for pension transfers after the FCA proposed to ban contingent charging in all but a few pension transfer scenarios.
This was to reduce concerns about a conflict of interest in situations where an adviser would only be paid if they recommended a transfer.
There will be exceptions for specific groups of consumers with certain identifiable circumstances, such as individuals suffering from serious ill-health or experiencing serious financial hardship.
In the minority of cases where contingent charging is permitted, advice firms will have to charge the same amount, in monetary terms, for advice to transfer as they charge when the advice is non-contingent.
XPS warned of the consequences of schemes sitting back and doing nothing to help their members, including members making the wrong decisions and falling victim to a scam.
It also pointed out that trustees had a legal duty to ensure that members are adequately supported.