Ros Altmann: My solution to the DB transfer advice debacle

Ros AltmannThe six million people in defined benefit pension schemes who could be enticed by the high transfer values on offer are causing much consternation among parliamentarians, the regulator and financial advisers.

The FCA has found a significant proportion of transfer advice to be unsuitable or questionable. Its latest consultation suggests big changes to the way such transfers operate.

It is most unfortunate that rogue firms, or unqualified, unregulated lead generators, have damaged the reputation of the advice industry. As the FCA rightly acknowledges, advice is a valuable service, but it is also important that quality and professionalism meet expectations.

The work and pensions select committee has called for a ban on contingent charging and the FCA echoes concerns about potential conflicts of interests with business models that rely on transfers in order to ensure profitability.

FCA urged not to ban contingent charging by own advisers

I have suggested an alternative approach to the FCA – one that increases awareness of the value of advice, while also achieving its aims.

Everyone thinking of transferring should be required to take independent guidance first. This would help advisers who “triage” potential clients by means of generic “advice”. The FCA has warned that this may too easily stray into actual advice. Even deciding against accepting a client could be construed as advice against transferring. By the same token, accepting them might be indicative of a conclusion that the transfer is sensible.

Separating the adviser from such a pre-selection process is much safer.

The government’s new single financial guidance body could play an important role. Explaining basic parameters could help DB scheme members to self-select.

For example, those in very poor health with other guaranteed pensions, who plan to work well beyond pension age, or who want a fund for social care or tax-free legacies, would learn that transferring might suit them. But if they were in good health, had just this one pension and did not like taking investment risk, then they would be deterred from seeking advice.

Finding the right outsourced DB transfer specialist

When better informed, those still wanting professional, qualified, independent advice will better understand why they should pay for it.

I support the FCA proposal that a full report should be produced, justifying a recommendation not to transfer but raising the issue of charging for staying put. We need a system that justifies payment regardless of outcome, plus separate charge fees for carrying out the transfer.

The FCA could investigate allowing DB members to pay for advice out of their DB pension entitlement. Fixed fees or percentage of assets are easily deducted from transfer sums. But if the best advice is not to transfer, a charge could be paid by the scheme in exchange for an appropriate reduction in future pension. The scheme may need to make a small admin charge for this.

Ten issues with DB transfer files and how to solve them

The benefits of such an approach would be more members understanding the advantages and disadvantages of transferring, rather than just being lured by the large sums on offer. Meanwhile, advisers are paid for their expert advice without the risk of conflicts or incentives.

If this results in fewer transfers, so be it. But it should still mean those for whom transferring really is the right choice (and there are many) can feel confident in achieving the right outcome.

Ros Altmann is former pensions minister



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There are 15 comments at the moment, we would love to hear your opinion too.

  1. I like the idea.

  2. Very complex working out how much pension to nibble off to pay the “advice to stay put” fees. That has got reverse annuity issues written over it, and will incur actuarial fees to calculate the cost of paying the advice fees. I spot a never ending interative process.

  3. The Final Salary Portal is up and running and has already delivered hundreds of PMI accredited educational video journeys to advisers client as part of their DB review process. Robo triage – it works!

  4. My solution is far quicker and far more effective at protecting the consumers and advisers.

    All advisers stop advising on all but ill health DB transfers until the FCA, FOS, MP’s, TSC, Pension trustees, regulators, PI insurance actually agree the rules and process. They must provide regulatory statements, rules which if followed correctly will provide advisers with some protection.

    The advisers cannot continue unless this happens. The consumer and advisers are stuck in a loss, loss situation. The consumer cannot transfer without and advisers signature and the advisers cannot support due to unclear and unfair practises from the powers in charge, as the liability due to the uncertainty is not worth the risk. One body has one point of view, another a different, all are fighting with each other, mean while advisers are facing the consumers with no clear outcome of what will be acceptable and not.

    Pension Freedom should mean FREADOM, not you have to get someone to take the liability for you so the Government, FCA or you have an escape or someone to point the finger at.

    This is so simple, either agree a process, rules, or give the consumers freedom and allow them to act themselves.

    You cannot keep blaming advisers for everything when you have insisted they have to sign for the consumer to do what they want, with their pensions under pension freedoms.

  5. As someone who wants to transfer their DB pension, I am frustrated by the lack of advisors willing to ‘take the risk’ of advising me I can! My DB pension will be about £600 pa, and I have been told my transfer value would be circa £50k. I will have to live for about 90 years to get anywhere close to receiving this amount, but no one will touch help me to transfer. I have a decent pension pot from my DC pensions, so the DB pension isn’t my only pot available. I am annoyed that I can’t get to my money, and will never recoup anywhere near what it’s transfer value will be, because everyone is terrified the regulator will come down hard on them.

  6. “Everyone thinking of transferring should be required to take independent guidance first. This would help advisers who “triage” potential clients by means of generic “advice”.”

    The words like ‘guidance’ and ‘triage’ are simply ‘muddying the waters’. I’ve lost count of how many clients think they have received ‘advice’ upon speaking with the likes of Pension Wise. It’s dangerous territory and since when did advisers give ‘guidance’? I was under the understanding that we were to give personal advice and recommendation?

  7. It sounds interesting.

    Like the idea of an organisation with no commercial bias carrying out a triage.

    Also like the suggestions around enabling the payment of fees for advice, if we are to move to an environment without contingent charging it is important to ensure the less well off still have the means to access advice.

  8. Andrew Gething 11th June 2018 at 6:13 pm


    This is sound thinking.

    A major advantage of this model, is the DB scheme being aware of the health of the scheme members who opt to transfer and hence to understand how this cherry picking affects their overall valuation. It is frightening, how DB schemes have no idea the health of those transferring out.

    Interestingly many of the challenges, independence, guidance or advice, assessing health and longevity are all the same we worked on for the deceased Secondary Annuity Market.

  9. Mandate the right to a partial transfer of up to 30k on DB schemes every 5 years from age 55 without advice. That would sort Marta Kovacs situation and not require regulated advice then.

  10. Simon Gallagher 12th June 2018 at 7:59 am

    Fantastic article and idea.

    Get rid of the feral advisers that still frequent our profession.

  11. As I have commented before, a centralised clearing system for members who do not want regulated advice would meet the objectives of the various interested parties, Government, FCA, scheme trustees etc.

    This would reduce the burden on advisers by opening up capacity, and there would be no regulatory protection available, so no claims chasers to worry about.

    My concern is as to whether the ” guidance ” could ever be of sufficient standard to allow the member to make the right decision, but my recollection of the thinking behind pension freedoms was that they should be trusted with their own money. This has not worked out in practice and perhaps it is time to loosen the reins, in a controlled way.

  12. Or be more radical and let companies transfer all final salary benefits as long as they pay 100% (or a larger premium) of the transfer value, not some completely unaffordable buyout price. This may help avoid the current uncertainty and allow the employers to at last get rid of this outdated mode of pension funding which is crippling for some employers who historically though they were giving their employees a nice pension but have ended up still funding benefits for people who have long left their employment in many cases.

  13. Robert Milligan 18th June 2018 at 12:42 pm

    Its very simple, just Stop the Transferring Out completely, after all the employer was only funding for an income for the employee and their direct spouse, Or why is it Superannuation benefits can not be transferred out.! I bet we would see very large valuations from the so called Gold Plated schemes. One for all, all for one.

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