Personal Finance Society  

Pension transfer advisers passing PI costs to clients

Pension transfer advisers passing PI costs to clients

Half of pension transfer advisers could be passing on the cost of rising insurance premiums to clients amid ongoing concerns the hardening market is creating a barrier for consumers looking to access pension freedoms.  

A poll of 94 Personal Finance Society members with permissions to advise on pension transfers found almost 95 per cent had seen an increase in the cost of their professional indemnity insurance in the past year. 

As a result, half said they had been forced to pass this increased cost of cover on to their clients.

Keith Richards, chief executive of the PFS, said: "The hardening of the professional indemnity insurance market is impacting the availability of advice to consumers, who must take regulated advice to be able to exercise their rights under pension freedoms for defined benefits pension transfers."

Almost four out of 10 of the advisers surveyed in October warned the cost of their insurance premiums had increased by between 20 per cent and 50 per cent on the amount they paid a year ago.

Another 36 per cent said the price they pay for cover had jumped by more than 50 per cent.

The professional body has repeatedly sounded alarm bells over a hardening professional indemnity market for advisers this year, who have faced soaring premiums and a growing list of exclusions as part of their cover. 

Mr Richards said: "The current method of funding consumer compensation is also unsustainable and we are again calling for government intervention for a complete overhaul before there is no alternative, as both consumer protection and market sustainability continues to be negatively impacted." 

The PFS boss said this would be best achieved by removing the "volatility and uncertainty" around the availability of insurance and its impact on the Financial Services Compensation Scheme and its levy.

Figures released by the Financial Conduct Authority earlier this year found the advice industry spent more than £110m on professional indemnity insurance in 2019.

According to the City watchdog the average bill paid by advisers for their insurance was more than £24,000 last year, but the figures pointed to the smallest firms as bearing the brunt of the market. 

Mr Richards added: "Reform can be achieved by pooling the cost of compensation at the highest level: funds under management.

"This would mean a much wider, fairer, and sustainable solution for modernising the regulatory, consumer education and compensation funding structure. 

"It would ensure consumers don’t lose out on access to advice, are compensated when things unexpectedly go wrong and ultimately have greater trust in our regulated sectors at a time when the public are facing uncertainty and a significant and growing risk from scams."

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