Providers’ requirements for advice to be carried out on sub £30,000 defined benefit transfers are affecting savers amid a shrinking market, experts have warned.
Concerns were raised after FTAdviser research showed more receiving schemes now require advice on small DB transfers than three years ago, despite this not being a regulatory requirement.
Industry experts warned it was already “incredibly difficult” for savers to get advice on large DB transfers as the advice market shrinks more and more each year, so requiring advice on smaller pots was “highly impractical” for savers.
Phil Handley, pension transfer specialist at Smith Robinson & Co, said: “Where there were more advisers previously, there may have been enough capacity for some advisers to take on the sub £30,000 clients.
“Now, with so many advisers either being priced out by PI companies, scared out of the industry by the excessive regulation or being refused indemnity insurance, those left are more likely to cherry pick the larger cases.”
FTAdviser found the majority of receiving providers want to see evidence of advice before accepting a sub £30,000 transfer into a defined contribution scheme or self-invested personal pension.
Of the 13 providers approached by FTAdviser , seven confirmed they would ask for advice on transfers into the scheme, regardless of pot size.
One did not respond in time for publication and three said they would not go beyond the statutory requirement of requiring advice on pots valued at more than £30,000.
AJBell requires advice on all transfers onto its advised platform but for transfers to its direct to consumer platform it does not require advice for cases sub £30,000 as “it is not a regulatory requirement and it is an execution-only service”.
Q: Do you ask for evidence of advice on transfers into your DC schemes for sub £30,000 pots?
| Provider | Yes | No |
| Aviva | - | - |
| James Hay | X | |
| LV= | X (minor exceptions) | |
| Barnett Waddingham | - | - |
| Dentons Pensions | X | |
| Hargreaves Lansdown | X | |
| Fidelity | X | |
| LGIM | X | |
| Prudential | X | |
| AJ Bell | X (advised platform) | X (D2C platform) |
| Royal London | X | |
| Aegon | X | |
| Canada Life | X (advised only product) |
Andrew Tully, technical director at Canada Life, thought although people are allowed to proceed without advice on sub £30,000 transfers, it was still a good idea to get advice.
Mr Tully said: “An adviser can talk through the risks of transferring and compare and contrast that to the risks of remaining in the scheme.
“People looking to transfer without advice also need to be wary of scams which have increased considerably over the past few years, and these appear to be gathering pace as fraudsters use the cover of Covid-19 to prey on innocent victims.”
But others are concerned about the struggle to find advisers operating in this market. In addition, in cases where advisers are available, transfer advice can be so costly that savers decide against it.
Steve Webb, partner at LCP said: “It is hard enough to obtain DB transfer advice for larger pensions, but where receiving schemes require advice for small transfers that will in effect be a block in most cases. Even where such advice can be obtained, it is unlikely to be cost-effective.
“Those with smaller DB rights are likely to opt instead to transfer to a provider who will accept such transfers on a non-advised basis”.
Mr Handley said advisers usually have a minimum charge for advice based on the time spent putting together a recommendation: “DB advice requires a huge amount of work in terms of administration, analysis and report writing.
“Unfortunately, it’s not economically viable for an adviser to charge £500 for DB advice. For someone with less than £30,000, the adviser's minimum advice charge can represent a large percentage of their fund, therefore it often doesn’t add up.”
Meanwhile Romi Savova, chief executive officer at consolidator PensionBee, said a one-off advice cost could be a solution.
She said: “I would be in favour of affordable one-time advice; however it is unlikely advisers will be prepared to give it.”
Abridged advice an option?
The introduction of abridged advice may offer up new options for those with smaller transfers as it is seen as a cheaper option.
Steven Cameron, pensions director at Aegon, said: “The cost of full advice on a transfer worth under £30,000 is likely to be prohibitive, but abridged advice may be available at a much lower price.
“We might see a new approach of encouraging those with very small DB pensions worth under £30k to consider abridged advice before making their own decision.
“Abridged advice can’t conclude transferring is the right thing for a client, but it can indicate where it is clearly not the right thing to do.”
Abridged advice sits in between triage and full pension transfer advice but can only result in a recommendation to not transfer out.
Mr Handley is not convinced that providers will accept this form of advice over full advice.
He said: “Abridged advice isn’t really telling the providers anything that may protect them. It’s either saying the adviser says don’t transfer, or it’s unclear as to whether they should transfer.
"From a risk perspective, neither of these outcomes is any more helpful than if they hadn’t received any advice.”
He added: “Abridged advice is still in its infancy and I think a few advisers are still making up their minds whether to offer this service as a halfway house option.
“The concept is good, there needs to be a cheaper way for members to understand if transferring is in their best interests, especially those with sub £30,000 funds.”
amy.austin@ft.com
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