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.”