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?
|LV=||X (minor exceptions)|
|AJ Bell||X (advised platform)||X (D2C platform)|
|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”.