The Treasury and Financial Conduct Authority are monitoring the availability of defined benefit pension transfer advice after concerns were raised about the sharp drop in the number of firms giving advice in this area.
John Glen, economic secretary to the Treasury, said that the government and regulator were "monitoring the situation closely" after soaring costs of professional indemnity insurance has led to a flood of advisers leaving the DB transfer advice market.
The market for defined benefit transfer advice has shrunk significantly in recent years, with the number of DB advice firms dropping from 3,000 in 2018 to 1,160 at the start of February, according to Glen.
Glen defended the rising costs of insurance, which he said was a result of the FCA intervening "extensively" to improve DB transfer advice.
He said the government and FCA believe it is “vital” that consumers receive suitable advice in this market, considering the long-term financial implications of a pension transfer.
“Since 2015, the FCA have identified numerous instances of unsuitable advice being given, putting at risk pensioners’ financial security," he said.
“The FCA recognises that these actions have led to an increase in the cost of professional indemnity insurance for advisers who give DB transfer advice.
"As a result, some firms are choosing not to offer pension transfer advice and others are charging more, due to the cost of the insurance premiums.”
Glen’s comments came in a written answer to a question from a fellow MP who asked what discussions the chancellor has had with the regulator on the availability of financial advisers who are licensed to provide advice on transferring DB pensions.
Since the British Steel Pension Scheme debacle of 2017, a pincer-movement of tighter regulation around DB transfers, together with a rise in PII premiums for advisers still with permissions to carry out DB transfer advice business has exacerbated the lack of available advice in this area.
A joint report from Aviva and LCP published at the end of last year found that issues around PII were the main reason advisers were leaving the market, as firms have been unable to obtain renewal cover or the cost has been too high.
The report found the second factor driving advisers out of the market was the ‘attitude of regulators’. The report surveyed more than 200 advisers, 100 of whom were still active in the market.
One in three of the advisers still active in the market said they were either unsure if they would still be providing transfer advice in a year’s time, or had already decided to pull out.
The shrinking market for defined benefit transfer advice is "dangerous" for consumers and needs to be rectified by regulators and pension schemes, the report warned.
Around the same time, the FCA said it was pleased with the development in the DB transfer space.