Business is booming.

Pension transfers decline as advisers back away

Savers looking to cash in a traditional final salary pension face a dwindling supply of financial advice as a regulatory crackdown has led to a fall in transfer recommendations.

Currently, anyone looking to swap a future defined benefit (DB) pension for a cash lump sum is required to obtain independent financial advice, if the pot is worth more than £30,000, due to the financial risks of giving up a secure, index-linked retirement income.

But previously unpublished data from the Financial Conduct Authority shows action aimed at weeding out poor DB transfer advice has put the brakes on transfer activity.

About 34,000 people were advised by financial advisers to transfer a DB pension in the 18 months to September 2021, a third fewer than the 49,456 reported in the previous 18 months, according to data released by the FCA following a freedom of information request.

The dramatic fall in transfer recommendations followed a transfer boom in 2017-18 which saw more than 100,000 clients advised to swap their guaranteed future pension for a cash lump sum today.

Many were advised to unlock their traditional pensions to take greater control over their retirement cash in a defined contribution pension, and improved death benefits.

But this volume of transfer recommendations, also driven by soaring transfer values, had worried the regulator, which believes most people should not give up a valuable guaranteed pension and transfer their pot to more flexible pension arrangement which does not offer retirement income security.

“We’ve been clear that most savers are better off staying in DB schemes,” said the FCA. “Our significant supervisory and enforcement work is helping drive up standards and reducing transfers.”

The data, obtained following an FOI request lodged by business intelligence company Kroll, showed a decline in transfer recommendations after a controversial advice fee model said to incentivise pension mis-selling was banned in October 2020.

Under the “contingent charging” fee model, the adviser is only paid if the transfer goes ahead. Between April and September 2020, before the ban on this practice came into force, nearly 14,000 clients were advised to transfer a DB pension.

In the following six months, when advisers were barred in most cases from using it, transfer recommendations fell by a third to 9,703.

The number of firms of independent financial advisers with permission to give DB transfer advice has more than halved from 3,068 in 2018 to 1,160 in 2022, according to the National Audit Office.

The FCA data also showed that more clients looking to unlock their DB pensions were being steered away from full blown advice, after an initial consultation or “triage” session with an adviser.

Only one-third (35 per cent) of clients who had been triaged went on to get full-blown financial advice between April and September 2021. This was down from 47 per cent a year ago.

“The decrease means fewer people will be paying for full advice, and hopefully the vast majority of those that do not convert to full advice are the ones where a DB transfer is not suitable,” said Mark Turner, managing director of Kroll’s financial services compliance and regulation practice.

“However there is definitely a risk that some individuals could be discounted at triage where full advice could have resulted in a recommendation to transfer. On balance though . . . the decrease is more positive than negative.”

Matthew Connell, director of policy and public affairs for the Personal Finance Society, said: “Whether you should transfer out or stay in your defined benefit scheme depends very much on your personal circumstances, which is why it is vital to speak to a financial adviser.”

He said the risk of transferring out of a DB pension was that the member loses out on a guaranteed lifetime income and may run out of money in later life.

“A range of factors has combined in recent months to drive down volumes in the defined benefit pension transfer market. Reduced access to affordable advice, transfer values peaking, plus the lockdowns also resulted in reduced activity.”


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