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DB transfer boom could increase PI bills, advisers warn

Advisers have expressed concerns that the cost of their professional indemnity insurance will rise because of the defined benefit pension transfer boom.

In a survey of more than 200 advisers by Prudential, nearly 40 per cent said that were concerned about contested advice becoming a future liability, and 17 per cent expected PI bills to increase.

The study also reveals that a high proportion of advisers are still helping transactions on behalf of ‘insistent clients’ – those that want to act against recommendation – despite warnings from the likes of the Personal Finance Society against the practice.

44 per cent saw an increase in clients wanting to go ahead with a transfer despite advice against it, and around half of the advisers surveyed said they had helped with the transfer after the client over-ruled their recommendation.

Prudential seniorpensions business development manager Stan Russell says: “Relatively high transfer values and the fact that pensions can be left as part of an inheritance are among the main reasons why clients might insist on a transfer, even if it is not in their best interests.

“This presents financial advisers with a dilemma. The valuable benefits of a defined benefit pension should not be given up lightly because it involves transferring investment and longevity risk from the employer to employee and is irreversible once complete.”

Presenting on DB transfers this morning, Russell said that advisers have noted that there are only around five specialist PI insurers for DB transfers in the market, and all would be at risk of folding in the event of mass claims.

Prudentials Colin Simon presenting on DB transfer calculations this morning

The release of the research comes on the day that the FCA fined a compliance oversight officer £75,000 for putting clients at risk of unsuitable pension transfer advice.

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Comments

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  1. Julian Stevens 14th July 2017 at 3:49 pm

    Given that I don’t do DB transfers and, to the best of my knowledge, my network’s oversight of this type of business undertaken by other members is about as belt and braces as it can be, I don’t anticipate any impact on my PII premiums. The real worry, as ever these days, is the FSCS levies, over which neither my network or I have any control.

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