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Caution is urged on DB transfers into stakeholder

The ABI is issuing its members with guidance notes to curb fears of widespread misbuying as members of occupational pension schemes transfer their defined benefits to stakeholder.

Life offices and IFAs fear that the requirement to allow transfers from all other pension arrangements to stakeholder creates the potential for misbuying by defined-benefit scheme members who fail to take advice before transferring.

It is unlikely to be in the best interest of members of DB schemes to transfer into money-purchase schemes such as stakeholder. However, members may not be alerted to this hazard if they shun advice and choose the execution-only route or use decision trees.

The ABI is considering asking the FSA to issue a pamphlet explaining the potential risks of transferring. In the interim, it has issued guidance notes for its members on types of transfer and the levels of caution that stakeholder providers should communicate to customers.

The ABI states that life offices dealing with high-risk transfers, such as those from DB schemes, should communicate the message: “It is extremely unlikely to be in your best interests and we strongly recommend that you take advice.”

Skandia head of pensions marketing Peter Jordan says: “While stakeholder providers are welcoming with enthusiasm stakeholder business, they should be thinking about putting certain people off and pointing them strongly in the direction of advice.”

LM Financial sales and marketing director Mark Howard says: “It is important for providers to take the lead. The last thing the industry can afford is a misbuying scandal.”

Informed Choice managing director Nick Bamford says: Stakeholder remains cheap, not simple, and you would be extremely naive to think otherwise.” 

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