Warning of ‘capacity crunch’ for pension transfer advice

Sustained demand for transfer advice from defined benefit (DB) pension scheme members, coupled with increased regulation and PI insurance costs, is expected to leave many members unable to find a trusted financial adviser to help them assess their options.

A new report from Barnett Waddingham, a leading independent UK professional services consultancy, warns that unless scheme sponsors and trustees put support frameworks in place, many scheme members may struggle to find a firm to advise them on their DB transfer options as required by law.

Pension scheme members have been transferring their DB pension benefits to defined contribution (DC) schemes at significant levels over the last few years, driven by the perfect storm of the pension freedom legislation and high transfer value levels resulting from low interest rates and increasing life expectancies.

While increased oversight and regulation from the Financial Conduct Authority is expected to improve members’ experiences and retirement outcomes overall, when combined with increasing PI insurance costs, many firms are expected to cease offering DB pension transfer advice. The significant reduction in advisers with the necessary regulatory permissions is likely to adversely impact members. Trustees and scheme sponsors will also be affected as they look to de-risk and settle benefits.

"For sponsors and trustees, the risk of doing nothing to support members in this area is now far higher than the risk of actively doing something."
Simon Taylor Partner, Barnett Waddingham

“According to the latest figures, there are now 5.8 million non-pensioner members in private sector DB schemes,” explains Simon Taylor, Partner and Senior Corporate Consultant at Barnett Waddingham.

“Based on data from the PPF and the FCA, we estimate that about 200,000 of these members are currently retiring or transferring each year and that recent levels of demand for financial advice reached about 50% of this, or 100,000 members in the year to 30 September 2018. This shows that where advice is readily available to members who are looking at their options within their DB scheme, a significant proportion will take it. But with the number of advisers reducing significantly, there is every reason to believe we are approaching a serious capacity crunch.

“Members must take advice from a financial adviser in order to make an informed decision on transferring that leads to a good outcome. We strongly urge sponsors and trustees to consider partnering with a trusted firm of member advisers having done some due diligence. This will enable members to access transfer advice easily and cost effectively.

“For sponsors and trustees, the risk of doing nothing to support members in this area is now far higher than the risk of actively doing something.

“DB transfers will remain an emotive issue and we agree that, for most members, remaining in the scheme will be their best option. However there will be a sizeable minority for whom transferring makes sense and it is vital that these members can get robust, trusted advice at a sensible cost in order to be able to transfer. Given the likely evolution of the member adviser market, it is difficult to see how most members will be able to do this without some support from the scheme sponsor and/or trustees.”

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Our full report, DB to DC transfers: the current landscape, is available to download.

Read the report