At least three networks have received 100 per cent suitability ratings from the FCA for the defined benefit pension transfers they have carried out, Money Marketing understands.
As reports of poor practice focus on small regional advice firms, the figures suggest many larger networks have developed robust systems for conducting DB transfers.
Money Marketing understands some networks were given a perfect bill of health not only in the FCA’s wider DB transfer suitability review but also in its separate review of transfers conducted out of the British Steel Pension Scheme.
Several networks have carefully monitored the number of advisers licenced to conduct transfers, capped the amount of possible remuneration advisers can receive from the work, decided not to charge implementation fees, and pre-approved transfers at the initial stages before they can be carried out.
Others are encouraging non-contingent charging, running training courses or instituting triage sessions on how to deal with new cases.
Questions are still being asked about the controversial BSPS and how steelworkers were advised on their pension transfers. Last month, it emerged some scheme members did not receive suitability reports from their advisers before they were transferred out of the scheme.
Around six million people are eligible to transfer out of DB schemes, but this is only the right course of action for a minority of them. The benefits of DB pensions, which last a lifetime, are hard to beat on the open market.
The regulator has stuck to its position that “most consumers will be best advised to keep them”. It says unsuitable advice to transfer out of schemes could “result in
lower retirement income” and run “the risk of running out of money sooner than expected”.
Overall, around 51 per cent of British Steel DB transfers made were deemed suitable, according to the FCA.
Reviewing a total of 88 DB transfers from the wider market last year, 47 per cent were found to be suitable, with a further 36 per cent judged as unclear. The remaining 17 per cent were unsuitable. The apparent track records of networks stand in stark contrast to these results.
Pension freedoms, introduced in 2015, have created greater demand for advice around pension transfers as savers look for alternative ways to generate an income through retirement. As well as this, a string of high-profile pension scheme collapses have caused concern about the financial strength of some schemes, causing nervous savers to seek access to their pension pots.
Transfer values are higher than they have been in recent years, which is causing more savers to consider opting out of their scheme.
Giving advisers confidence
In addition to new rules laid out last month calling for an increase in pension transfer specialists’ qualifications and a new methodology for calculating transfer values, the FCA is also exploring whether to intervene on fees, with the possibility of banning contingent charging.
Fidelity International pensions product head Carolyn Jones says: “Customers must be confident the advice they have received is right for their individual needs and circumstances. Advisers need to be given as much certainty as possible in order to have the confidence to give advice, as they need to be sure that by working within current regulatory requirements and expectations, these very same rules are not at risk of challenge in the future.”
Aegon pensions director Steven Cameron says: “This is good news for the many thousands of individuals wondering if they should transfer out of their scheme. The regulator has now clearly set out ‘what good looks like’, offering advisers confidence so they can meet demands from their clients.”
Defined benefit pension entitlements are estimated to be worth £2trn to UK savers but, while the majority would be wise to keep hold of these gold-plated pension pots, there are circumstances when a transfer would be suitable.
Knowing your client
Shore Financial Planning chartered financial planner Alison Treharne says: “Sometimes DB transfers are suitable, and it is our responsibility to at least consider whether that is the case to ensure the client is aware of all of the options.
“High standards of technical knowledge are essential and you need to understand your client and their objectives to ascertain what is right for them.”
Those without a spouse or with a shortened life expectancy may be potential candidates for a transfer, as are those with significant wealth elsewhere who are not reliant on the benefits provided by the DB pension.
The Lang Cat principal Mark Polson says: “It’s perfectly possible for transfers to be positive. The key thing is that these situations are hardly ever just about a straight bet between a cash-in value and the DB benefit, and that is why careful file keeping and really strong fact-finding is crucial.”
Yellowtail Financial planning director Dennis Hall adds: “A starting point for any advice has to be financial and cashflow planning, trying to understand what the
client is trying to achieve and how best to do this. Simply looking at a critical yield calculation tells you nothing about the client and doesn’t prove conclusively whether a transfer is right or wrong for a particular client situation.”