The FCA’s recently published final rules and guidance on DB pension transfer advice (PS20/6) is expected to reduce significantly the numbers of advisers with the permissions to advise on DB transfers.
This will further exacerbate the trend already started by the increased regulatory focus, and increases and/or restrictions in professional indemnity premiums over the last few years.
While the drive to improve standards is to be applauded, the reduction in the number of advisers will be a further blow to defined benefit scheme members who want to investigate their transfer options.
They will find it increasingly hard to find a trusted adviser.
This comes at a time when the Pensions Regulator is asking scheme trustees to focus on protecting their members from scams and when it is entirely possible that there is a spike in interest in transfers as members seek alternative sources of income as a result of Covid-19-driven furlough and redundancy.
Our experience of transfer incidence
Our administration team saw a more than 50 per cent drop in transfer value requests in the first few weeks of the Covid-19 lockdown compared to the same period in 2019.
Requests then picked up a few weeks ago when we started to see an upward trend in request numbers. Whilst it is early days, this could be evidence of an increased interest in transfers as a result of the impact of the lockdown.
To put some context around the numbers of members, there are around 5.9m non-pensioner members in UK private sector defined benefit schemes and, because of the history of scheme closures to new joiners, many will be close to, or over, the age when they can access their benefits.
If just 2 per cent of them want to investigate their transfer option each year, that is around 120,000 members seeking advice.
The FCA’s cost benefit analysis looking at the impact of the ban on contingent charging concludes that, setting aside any Covid-19 spike, the numbers of members taking transfer advice is expected to fall by more than 50 per cent.
It also concludes that around a third of these members would be cases where a transfer would be suitable. This could be significant number of members, say, 20,000.
While the FCA’s objective is to minimise the harm done by bad transfer advice, the collateral damage is not immaterial.
Indeed, their cost-benefit analysis sets out some scenarios where the benefit to consumers of not taking inappropriate advice is more than offset by the gains forfeited from those where a transfer would have been suitable.
Supporting DB scheme members
The question I would ask is: should trustees and sponsoring employers be happy that a significant minority of their members will find it very difficult to access advice that would result in a transfer that is in their best interests?