MM leader: Handle DB transfers advice with care


When the Government issued its Freedom and Choice in Pensions consultation response last month, the initial clamour inevitably focused on the fact that advisers look set to pay a sizeable chunk towards Chancellor George Osborne’s guidance guarantee.

But another significant development contained within the document has received scant coverage in comparison. This is the Government’s decision to mandate advice for savers wanting to transfer out of defined benefit pension schemes.

Now, cynical journalists are often berated for focusing on the bad and not doing enough to highlight the good. While undoubtedly the requirement for regulated financial advice in this sphere creates a burgeoning advice opportunity, there is a cloud to this silver lining.

First, it is worth noting that just as Osborne’s flagship pension reforms have been dubbed a political masterstroke in the run-up to the general election, the decision to mandate advice on DB-to-DC transfers is equally politically motivated. As Towers Watson senior consultant Stephen Green points out, the advice requirement is the Government’s “first line of defence” for warding off any potential misselling scandals that loom on the horizon as a result of the changes. 

With employers keen to see the back of expensive final salary schemes, and savers flush with their wide range of pension choices, advisers will need to keep this in mind and document their recommendations accordingly.

Another factor is the environment in which this advice will be given. There will be people who, perhaps unwittingly, decide to give up the inherent guarantees in their DB pension to take advantage of the new pension freedoms. To be forced down the advice route, only to be told that decision is not in their interests, and then be charged for the privilege will not sit well with savers. Mandatory advice, while well founded, does not exactly foster the trust and the kind of working relationship good advisers have been striving for.

Finally, there is the issue of flexible access to pension pots from within DB schemes themselves. When pressed by Money Marketing, the Treasury refused to be drawn on whether mandated advice will extend to those taking income while staying in their DB scheme. 

The Government needs to clarify its stance on this, and quickly, or risk a bizarre situation where those transferring to DC are given advice while those who choose to remain a DB member are not. 

Roll on April.

Natalie Holt is editor of Money Marketing. Follow her on twitter: @Natalie_Holt_MM



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There are 4 comments at the moment, we would love to hear your opinion too.

  1. Ironically under the CII’s point system I have enough points for advanced, BUT one of the advantages of being a generalist and NOT having G60 or AF3 or permissions at the firm is I CANNOT advise on a DB transfer, so I can say to a client “you should consider advice on your DB scheme”, client says OK, how much will that cost me, well most advisers require a minimum TV of £50k and many of £100k, so if your Tv is smaller than that, the cost could outweigh the benefit, what would you like to do Mr client……
    If I obtain AF3 (I am about to start probably) I wonder where I then stand if I am qualified, but choose not to obtain permissions?
    Anyway, back to the article, I am pleased that DB to DC will make advice mandatory becuase as most qualified advisers seem to say, in the majority of cases it will be inappropriate to transfer, so this fact will hopefully mean people will ONLY seek advice if they have a genuine and justifiable reason which the adviser would then be happy to recommend a transfer for. This may then stop DB to shell SSAS, which seems to be what we are all hearing about, i.e. pension liberation.

  2. Rebecca Aldridge 7th August 2014 at 2:20 pm

    I know it’s not often that a transfer out of a DB scheme can be justified. But some clients want to transfer out anyway – to enable a SIPP/SSAS to purchase a new business premises for example. Does the mandatory requirement to receive advice also mean it’s mandatory to follow that advice, even if it’s to stay put? It is the client’s own money after all…

  3. @Rebecca – That is why I am in two minds about studying AF3 and even if I pass I wil still be in 2 minds about whether to apply for the permissions. Separating the ongoing advice relationship from the DB transfer advice does have advantages as it would not then sour the ongoing relationship if an external Transfer specialist advised against as the client can’t try to bully us in to doing it if we are not authorised while the DB specialist can take a view about charging for the risk of executing a transfer contrary to the advice and charging a risk premium accordingly.
    Even if I do pass AF1 and apply for permissions to do DB tfs, I will not be bullied in to doing something really stupid, but I’d prefer not to be put in that position in the first place.
    As such I think there could be an argument for separation of DB transfer advice from on-going adviser firms so we can’t advise our on clients on DB transfers (I might get my locum to do the reverse if I get qualified for instance)

  4. There is a further distinction around DB to DC pension transfer advice and the interest that generated from the increased budget flexibility of DC schemes. If a client is pre-retirement and wants to transfer his DB scheme in the anticipation of using that flexibility in the future, then ongoing accumulation continues. The client would not benefit from the new flexibility (yet). Therefore the adviser applies the normal logic on comparing benefits between DB and DC transfer (TVAS, etc.). However if a client wants to take benefits today and wants to consider a transfer to DC for flexibility, access, etc. then it is easier to compare benefits gained from a move and lost from the DB scheme. This is now a different market with different comparisons and considerations to make, compared to transfers where benefits will be drawn in the future.

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