Advisers are considering scrapping advice on defined benefit pension transfers due to changes to the Financial Ombudsman Service compensation limit, the Personal Finance Society says.
The FCA has increased the ombudsman’s award limit from £150,000 to £350,000 on April 1.
PFS said that since the hike, financial advisers has contacted the professional body, saying they have experienced significant increase in their professional indemnity premiums.
This led these advisers to consider increasing charges as well as no longer offering DB transfer advice altogether, PFS says.
One adviser who contacted the PFS said their professional indemnity insurer increased their premium in order to remain FCA-compliant, but it meant their firm could carry only three more defined benefit transfer cases.
The adviser was told their premium would increase from 3 per cent to 5 per cent of turnover and excess levels would be raised from £20,000 to £25,000 on defined benefit transfer cases.
The PFS quoted the adviser, who wished to remain anonymous, saying: “As a small firm turning over £200,000 a year and focused on only a few select clients this leaves us looking to cancel our defined benefit transfer permissions and seriously concerned about being able to obtain PII cover.”
Another adviser told the PFS their PI premium increases from £5,800 last year to £14,050 this year with the excess on DB transfers increasing from £5,000 in 2017 to £20,000 now.
A third adviser revealed last year PI had cost his business £6,700 but this year the premium was more than £27,000, despite the fact his company hadn’t advised on any British Steel pension transfers.
PFS chief executive Keith Richards says: “The raising of the FOS compensation is already having a material impact on the cost to operate for many firms whilst reducing access and the affordability of that advice, a key conflict with the Financial Advice Market Review objectives.
“The increased compensation limit is either stopping or driving financial advisers to consider no longer advising on pension transfers and therefore preventing people from being able to exercise their rights under pension freedoms which the PFS has raised with government.”
“The FCA considers allowing advisers extra time to make to think of arrangements for alternative professional indemnity cover in light of the ombudsman award increase. It also said it expects PI insurers to treat financial advisers searching for compliant insurance “fairly”.