Defined benefit transfers are here to stay.
That much at least is agreed, even as advisers and the regulator fight over how to ensure they are suitable.
But are there enough qualified advisers out there to deal with the boom in demand?
Money Marketing went to the Personal Finance Society for the last ten years’ worth of data on how many financial advisers were qualified to provide pension transfer advice (i.e. those that hold either G60 pensions or AF3 pension planning certifications.)
Back in 2007, there were 5,175 financial advisers qualified to advise on DB transfers. In 2017, that number is now at 8,347: a 61 per cent increase.
An extra 1,000 advisers have joined the ranks of the DB qualified since 2014 alone.
On the face of it, this looks good for those praying that advisers are not so overburdened with transfer requests that standards slip.
But remember: The Pensions Regulator estimates that around 80,000 DB transfers were conducted in the year to March 2017.
That is 10 DB transfers per financial adviser per year, then. That could sound like too many, depending on how much work you thought was needed to make sure a recommendation was suitable.
Or indeed, too few if you were convinced that the world has shifted irrevocably since the freedoms and DB transfers are often the best option.
Crucially, though, there are another 7,000 pension transfer specialists who hold the relevant qualifications, but do not hold statements of professional standing with the PFS that need to be thrown into the mix.
This group is showing a similar growth rate to those of your regulated IFAs, but numbers are increasing marginally slower (see above chart).
While these could take up the slack for IFAs trying to stay up to date on their transfer workloads, we have seen the FCA take aim at third-party providers of transfer value reports and other pension transfer services in recent months, resulting in several agreements to cease firm’s permissions, so they may not be the panacea for efficient case handling.
Either way, a wider look at the numbers suggests demand still outstrips supply. Though there is no clear trend showing either the number of SPS holding IFAs or pension transfer specialists qualified to conduct pension transfers slowing down, the rate of growth does not appear to be keeping pace with so many clients calling for a DB transfer.
Providers such as Xafinity say they’ve seen DB transfer volumes increase by 166 per cent year on year in the first quarter of 2017.
Comparatively, the growth rate in the number of advisers with transfer qualifications last year dropped from 5.9 per cent to 3.6 per cent (the high was 6.3 per cent in 2011 and 2012).
The growth rate in the number of non-SPS holding pension transfer specialists was 2.8 per cent, down from 3.3 per cent in 2015.
The top of the market
So have we nearly reached peak qualifications? Are we simply running out of bodies to get trained up to do DB transfer work?
PFS chief executive Keith Richards says greater certainty from the FCA will help more advisers into the market and help existing advisers expand their own service.
Richards says: “While the number of qualified pension transfer specialists has been increasing in recent years, this has not necessarily resulted in a corresponding increase in the capacity to service the growing market.
“Since the introduction of pension freedoms, many financial advisers have been reluctant to action pension transfer requests, particularly in cases where there is a fear that an insistent client request could result in retrospective retribution.”
“That is why the FCA’s recent proposals are so important. The proposals offer much needed clarification to advisers, and by introducing more stringency, help to allay any concerns around the potential for future action being taken against the adviser. This should result in an increased capacity for advisers to service the pension transfer market.”
If the demand for DB transfers keeps ballooning while this capacity increase does not happen among qualified advisers, we may be in for a demand crunch in a few years’ time.
Justin Cash is news editor at Money Marketing. You can follow him on Twitter @Justin_Cash_1