Advisers warn savers at risk after Govt eases DB advice rules

Advisers say more people are at risk of losing out as a result of the proposed of Government plans to loosen the advice requirement for members wanting to quit their DB scheme post-April.

Last week, it was confirmed people who want to transfer their savings from DB to DC schemes would only have to take regulated advice if the transfer value of the DB pension was over £30,000.

Initially, Chancellor George Osborne said the £30,000 cut-off point would take into account all pension savings.

Pension consultants say the move will ease the burden on trustees but advisers warn there is a danger more people who should take advice will miss out and that many will not understand how a cash figure relates to the value of a DB pension.

EA Financial Solutions managing director Minesh Patel says: “There’s a massive risk of more people losing out. The benefits of DB are being marginalised with the introduction of the pensions freedoms. DB transfers need to be policed a lot more strongly than they are at the moment. People are seeing the cash sum rather than what it gives you in the long run.

“There’s no focus on the inflation-linking, it’s being sidelined but if you take that £30,000 and put it in a bank inflation will quickly erode it.”

Furnley House director Stefan Fura says the cost of advice is prohibitive to the transfer of smaller pots, but that it is “not as easy to put a figure on a DB scheme”.

He says: “There’s danger in putting a cash value on it, people are looking solely at that figure.”

But Towers Watson senior consultant David Robbins says the Government’s clarification will help trustees and warns with furthering tinkering “there’s a danger of making it very complicated”.

He says: “It’s not that you can’t take advice, and of course providers could also refuse to accept transfers without advice, through [pensions minister] Steve Webb has previously said it’s not providers’ duty to do that.

“You’ve got to draw a line somewhere.”

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Comments

There is one comment at the moment, we would love to hear your opinion too.

  1. A cash equivalent transfer value of £30,000 means that the member would not have been in the scheme for very long or had very low earnings, therefore considering the history of DB scheme, we don’t think that many people will qualify for the sub £30k valuation anyway. One of the hardest aspects is to understand whether the transfer value represents good value or not, especially if the member is retiring very early compared to the scheme normal retirement date.

    The member, would be hard pressed to find an adviser willing to provide regulated advice at a reasonable cost that didn’t make it poor value, therefore the Government’s decision to allow this without advice is fairly pragmatic. However, defining a ‘best practice’ requirement for firms involved in this market,helping the member make an informed decision on whether to transfer (without advice) is probably something that should be introduced.

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