Pension consultants have welcomed the Financial Conduct Authority’s adoption of a tough stance on companies advising on defined benefit transfers, calling it a “price worth paying” for member security in retirement.
Drawdown specialist Intelligent Pensions is the latest to enter a voluntary agreement with the regulator to stop its DB to defined contribution business. Several other companies have reached similar agreements in the last year.
In response to reports that companies still operating in the space have had their processes scrutinised, the FCA said it was not carrying out an industry-wide assessment.
The current guidance or expectations in this field haven’t been formally updated to allow for the pension freedoms
Steven Cameron, Aegon
However, a spokesperson said the watchdog was supervising companies “on an ongoing basis”.
Interventions welcome
At face value, a dearth of transfer advisers could present a problem for some pension schemes, who can benefit from members transferring out even if their member is getting a good deal.
“Obviously transfer values can be beneficial to schemes as well as being beneficial to members,” said Hugh Nolan, director at Spence & Partners and president of the Society of Pension Professionals.
However, he called the restrictions a “price worth paying”, given that tough rules on advice will reassure schemes that members are not at a disadvantage from leaving.
“I don’t know a trustee in the world who wants to have members making a badly advised choice,” he said.
DC provider calls for consultation
Commentators in the retail pensions sector expressed frustration at the suspensions, which will contribute to a growing imbalance between supply and demand for DB transfer advice.
“The FCA’s right to want to ensure that advice on DB transfers is appropriate and reflects all the right factors,” said Steven Cameron, head of pensions at Aegon.
“The problem is that the current guidance or expectations in this field are really quite old and haven’t been formally updated to allow for the pension freedoms,” he continued.
He urged the FCA to open a consultation into transfer advice as part of its duty to safeguard market efficiency. That review would look to help advisers place a value on access to freedoms in their transfer value analysis system, rather than purely using critical yields analysis.
FCA reveals transfer data as experts note 'dramatic' increase
Close to 8,000 people transferred out of defined benefit schemes and into defined contribution between Q3 2015 and Q1 2016, figures from the Financial Conduct Authority show, but experts estimate the numbers may be even higher.
Cameron said the main risk of inaction would be that members who ask for advice and are forced to wait end up receiving less due to gilt market movements.
Communicate options but don't push members
For Bart Huby, a partner at consultancy LCP, robust regulation of advisers is necessary. “To provide good quality advice you need properly trained people who know what they’re talking about, and that’s not easy,” he said.
He added that while trustees should do their best to communicate all the options to their members, they should bear in mind that transfer is only likely to be appropriate for a minority, even if it is a significant one.
