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Supply of DB pension transfer advice ‘in retreat’

‘Pressure on trustees to do more to support members will only grow’


The decline in access of defined benefit (DB) pension transfer advice is “dangerous”, a joint study by Aviva and LCP has found.

This comes after data from the Financial Conduct Authority showed that the number of advisers with DB transfer advice permissions halved between 2018 and 2021 to 1,500 from 3,000.

But Aviva and LCP’s survey found that around a third of permission holders are not sure whether they will remain active in the space in a year’s time or have already decided to pull out.

The main reasons for advisers giving up their DB transfer permissions were cost and availability of professional indemnity (PI) insurance, the financial risks associated with it and the perceived “hostility” of regulators to DB transfers.

Some firms also mentioned the ban on contingent charging as one of the drivers to leave the market, where members now have to pay regardless of whether they decide to transfer.

As a result, Aviva and LCP discovered that many pension schemes are appointing IFA firms available to their members either for free or at a considerably cheaper price than if they would source one themselves.

Market ‘under strain’

Among the reasons for transferring out of a DB scheme, the insurer and consultancy firms found that health concerns now top the list.

Advisers have also increasingly recommended members to use part of their transferred funds to buy an annuity to provide guaranteed income once leaving their DB scheme.

The IFA appointed by the schemes added that the rules requiring them to benchmark the fund’s destination against a low-cost workplace pension had little effect as most of those opting out are already at retirement, while bigger advice firms are able to negotiate better terms than low-cost schemes.

Alistair McQueen, head of savings and retirement at Aviva, said: “Individually sought advice continues to be the backbone of the DB transfer advice market, but it is a market under strain. The supply of quality ‘high street’ DB advice is in retreat, leaving many individuals isolated.

“The industry and its regulators must work together to ensure that those seeking DB advice are not left stranded and exposed. Nature abhors a vacuum, and this advice vacuum is dangerous.”

Report co-author and LCP partner Steve Webb added: “It is becoming increasingly difficult for members to source affordable transfer advice, and this means that schemes and regulators need to do more.

“Growing numbers of pension schemes are now teaming up with one or more carefully selected advice firms to offer free or subsidised advice on pension transfers and wider pension issues. Given the challenges which members are facing, the pressure on trustees to do more to support members will only grow.”

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