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Employers could be forced to pay for DB transfer advice

Employers could be forced to pay for regulated advice for employees transferring out of defined benefit schemes under new rules.

In a series of amendments to the Pension Schemes Bill, published last week, work and pensions secretary Iain Duncan Smith says employers must ensure everyone transferring out of a DB scheme receives “appropriate independent advice”.

In addition, employers will have to pay for advice in unspecified transfer scenarios to be set out in the regulations. Industry experts predict this will happen when employers are encouraging employees to transfer out of DB, such as enhanced transfer value cases.

Duncan Smith says he could put limits on what employers pay but also stop them recovering the cost from employees in other ways.

Under the provision the employees would receive income tax relief on the cost of advice. If the advice costs £200 per member on basic rate income tax then the relief would be £40 per member with industry experts estimating the Treasury cost to be “small”.

It is a shift in tone for the Government which has been slammed for “recklessly” encouraging transfers out of DB to take advantage of new pension freedoms.

Hymans Robertson estimates up to one-third of those in DB schemes at-retirement could transfer into defined contribution pots.

Old Mutual Wealth retirement planning expert Bob Champion says: “I suspect employers would only pay under restricted circumstances when they are offering enhanced transfer values and encouraging people to take their money. Current regulations stipulate that members must get advice but now employers will have to pay for the cost of advice.”


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There are 7 comments at the moment, we would love to hear your opinion too.

  1. When a non-excutive director, our board was advised that recommending an advisor to staff in connection with our Defined Benefits scheme was advice in itself and that our organisation was not qualified to give such advice.

    If a scheme sponsor cannot pick an advisor then how then can they pick an advisor to pick another advisor, and so on. Such picking would be necessary to ensure that everyone transferring out of a DB scheme received “appropriate independent advice”.

  2. I think this article is misleading. The government was clear in its response to the Freedom & Choice consultation that members would not need to pay for their financial advice. The exception to this will be employer sponsored transfer exercises (ETVs) and the like. See para 4.25:

    Jade Murray
    Pensions Partner
    Addleshaw Goddard LLP

  3. ” If the advice costs £200 per member ” Is this to cover the full advice process and transfer analysis?

    I presume that they would have to pick from a list of approved Pension Transfer Specialists.

    I will not be volunteering for this one.

  4. £200 for full advice on a possible CE transfer of DB’s to a PP? What planet do these people live on?

    That aside, the great unknowable but entirely possible development is that before the member reaches retirement, the DB scheme in which s/he holds an entitlement will wind up with a deficit.

  5. Who in their rights minds would provide advice for £200?

  6. Anyone asked their PI insurers how they may view this matter? Even if we received £2,000 a case I can see a major problem come renewal time.

  7. “industry experts estimating the Treasury cost to be “small”.”

    Hmmm….be interesting to know which experts those are then. Whoever they are, I wish them joy from their £200 a time venture………..

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