Having taken a regulatory hammering over the past couple of years, IFAs in the UK are deeply concerned about the future of the defined benefit (DB) pension transfer market and what its potential collapse will mean for clients.
Since 2015, hundreds of thousands of retirees have tapped into their pots without issue; but, sadly, that has not always been the case and a growing number have fallen victim to scams.
As a result, DB transfers are seen as increasingly risky, the cost of professional indemnity (PI) insurance has shot through the roof and many firms have exited that part of the market entirely.
Recent figures from the Financial Conduct Authority show only 22% of advisory businesses in the UK offer DB transfer advice – down by nearly half from 41% last year.
With the number of firms offering DB transfer advice in free fall, is the space on the brink of collapse?
And if so, what will this mean for clients?
Freedom or lack thereof?
International Adviser surveyed 51 financial advisers based in the UK, most of whom are concerned about the effect this will have on their clients.
Around 35% said they expect a potential collapse of the DB transfer market to significantly impact them, while a similar percentage said it will slightly affect them.
Only 30% believed that a potential end to the DB transfer space would have no effect on their clients.
A lack of choice was flagged as a key concern, with fewer firms meaning limited options and higher costs for those wanting to transfer.
Some advisers in IA’s survey questioned whether there is any point in having pension freedoms when regulatory and PI burdens are pushing players out of the market.
But, with many advisers having worked with clients to build retirement strategies that involve using pension freedoms, removing it as an option could mean creating an alternative plan from scratch.
More harm than good
Some respondents said that significantly reducing the size of the DB transfer advice market would be positive, as the space is only really suitable for a small number of players.
A few others even backed scrapping pension freedoms entirely, stating that it would be the best way to protect consumers.
The regular data provided by the FCA seems to reflect the growing attitude that remaining in a DB scheme is the best option.
With pension freedoms now in its seventh year, the value and benefits enshrined in these schemes seem to be better appreciated and understood by clients.
