Relaxing DB transfer rules fraught with danger

Andrew Pennie, marketing director at Intelligent Pensions, told FTAdviser that making it easier for members to transfer out of a final salary pensions would leave them vulnerable to scammers.

Mr Pennie's warnings put him in direct opposition to Royal London's Sir Steve Webb and others who have called for the Financial Conduct Authority to take a more favourable view of defined benefit transfers.

It also pits him against the Work & Pensions select committee, which recently recommended relaxing the rules for small lump sum transfers.

Proponents of looser regulation claim pension freedoms have fundamentally changed the landscape, and  transferring out of a DB scheme is now, in some cases, the more rational course.

Without the intervention of specialist advice there is a real danger many will make very poor and inappropriate decisions.Andrew Pennie

But Mr Pennie said the answer was not to unwind rules designed to protect consumers.

"Making it easier to transfer is fraught with dangers," he said. 

"Defined benefit transfers are complex with many factors at play. Without the intervention of specialist advice there is a real danger many will make very poor and inappropriate decisions."

Under current rules, members looking to transfer pots greater than £30,000 must be advised by a specially-qualified financial adviser.

Mr Pennie said there was already evidence of "poor decisions" being made in the defined contribution market, where there is no requirement for advice.

"In my view we should be looking to increase protection for defined contribution members rather than water down the protections defined benefit members have.

"We must find a way for more people to access regulated advice to help achieve better retirement outcomes and give people the benefit and reassurance of full regulatory protection."

He added that, with the growing number of pension scams in the market, making it easier for people to transfer would "undoubtedly lead to more people becoming victims of these scams".

"I struggle to see how the government or regulator could consider making defined benefit transfers easier with the potential risks that exist," he said.

Intelligent Pensions, which provides an outsourced DB transfer advice service for financial advisers not qualified to provide the service themselves, has seen increasing interest in DB transfers since pension freedoms were introduced in April 2015.

Mr Pennie said they had even had a number of online enquiries between Christmas and New Year, which he said would have been "unheard of" in previous years.

His experience is mirrored by advisers across the board.

Graeme McColgan, a financial planner at Million Plus Financial Planning, said his firm had seen an increase in interest in DB transfers over the past six months.

This, he said, was partly driven by a 15 per cent spike in transfer values over 2016.

However, he stressed that his clients approached the matter with caution, and were willing to talk about all the aspects of the transfer.

"It is important for members to know that most transfer values have an expiry date after which time they will likely have to pay for a new calculation which then leads to the adviser having to re-do the analysis," he said.

"My advice is to speak to an adviser as soon as you get your statement or before ordering one so you do not end up paying twice," he said.

james.fernyhough@ft.com