Defined Benefit  

Industry must be wary of 'demonising' DB transfers

Industry must be wary of 'demonising' DB transfers

Regulators and the advice industry should be careful not to vilify all defined benefit transfers, despite the need for careful oversight, Canada Life has warned.

Andrew Tully, technical director at Canada Life, said the industry could be preventing some savers from getting the best outcome due to its stance on DB transfers.

Although it is in most people’s best interest to stay within a DB scheme, there are certain situations where a move may be beneficial, he said. For example, if an individual is in serious ill- health or in serious financial difficulty.

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Mr Tully said: “While it is right we have strong controls and scrutiny of transfers, we need to be careful not to demonise all transfers and those involved in them. 

“Otherwise we run the risk of stopping people exercising control over their pension savings, and preventing some from achieving the best outcome.”

But Dominic Murray, independent financial adviser at Cameron James, said although it could appear that the transfer market is “unfairly stigmatised” there were still many savers looking into this option, even if most were unlikely to be advised to transfer.

He said: “What we as advisers have to remember is, and the FCA constantly emphasises this, is that you need to start from a position whereby the transfer is not in the client's best interest, and then try to build an objective case from there why that initial stance is incorrect.

“For the vast majority of those seeking advice, the answer is to not transfer, so you would expect the amount of pension reports produced advising to transfer is low, but this is often not the case.”

Mr Murray pointed out that many clients who come to advisers looking to make a DB transfer never make it to the actual report stage. 

He said it was a good thing that clients are more sceptical about transferring their pensions due to the greater publicity around the subject.

“We want clients to share the same initial stance as advisers, that the pension transfer is not in their best interest, and go from there,” Mr Murray said.

“I think if advisers have conviction in knowing that the advice they give is accurate, prudent and well-supported then having an initially more sceptical or cautious client really shouldn't matter.”

October saw a variety of new rules surrounding DB transfers, including a ban on contingent charging and the introduction of new abridged advice mechanisms. 

The FCA said introducing the contingent charging ban will remove the conflicts of interest which arise when an adviser only gets paid if a transfer goes ahead.

Only consumers with certain identifiable circumstances, such as those suffering from serious ill-health or experiencing serious financial hardship, will be exempt.

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