Sixty-one per cent of employers say members are having difficulty in finding advisers for pension transfers, a new survey has found, as experts highlighted the need for companies to engage independent financial advisers on behalf of scheme members.
High transfer values have been boosting member interest in cashing in defined benefit pensions. But earlier this month, the Financial Conduct Authority found that fewer than half of DB transfer advice processes are suitable.
The struggle to find DB transfer advice
The survey, published on Tuesday and conducted by the Association of Consulting Actuaries, was based on responses from 466 employers.
It would be a positive step if more employers engaged IFAs to advise their scheme members
Bob Scott, ACA
It found that, among the 39 per cent of those employers with DB schemes, 61 per cent say members are struggling to find IFAs prepared to advise on pension transfers.
According to the survey, 47 per cent say the incidence of transfer requests exceeds 5 per cent of scheme members, with a third of these employers reporting requests exceeding 10 per cent of members.
However, as ACA chairman Bob Scott pointed out, “many more people investigate a transfer than actually take up the option”, with just 16 per cent reporting completed requests exceeding 5 per cent of scheme members.
Scott noted that “those who are advised not to transfer still have to meet their adviser's costs which must feel like paying for nothing”.
Current regulatory focus is on preventing people from taking a transfer if it may not be in their interests.
Scott said that, while this is understandable, there is also risk that some people for whom a transfer would be a good decision are either not made aware of their options or are advised not to transfer.
The starting position for advising on a transfer is still based on the hypothetical cost of securing, via annuity purchase, the defined benefits to be given up.
“The FCA could help here by overhauling the criteria for advising on a transfer, but initial signs from their drawn-out review are not encouraging,” he added.
Employers should appoint IFAs
Scott said: “It would be a positive step if more employers engaged IFAs to advise their scheme members.”
He explained that this means the adviser can become familiar with scheme provisions and therefore potentially give better advice.
The industry has been calling for an end to DB transfer delays, blaming a combination of complex DB pensions, strain on administrator resources and lack of transfer experience among IFAs.
Scott said that, if an employer has an IFA in place, the advice could also be provided more effectively, without having to raise so many questions with scheme administrators.
Source: ACA
Ben Roe, partner and head of liability management at consultancy Aon Hewitt, agreed. If the employer hires an IFA “a lot of the concerns… about being able to find good quality advice fall away”.
He highlighted the advantages of having someone there who can provide the advice that people need, and who is “up to speed on the benefits and the nuances of the particular defined benefit scheme in question”.
Roe noted that, according to an Aon Hewitt survey of its clients, less than 10 per cent of employers have put in place a preferred IFA.
However, “an increasing number are looking at it” because individuals are finding it difficult to find a suitable IFA on their own, he said.
FCA sounds alarm over unsuitable DB transfer advice
Fewer than half of defined benefit transfer advice processes are “suitable”, according to analysis by the Financial Conduct Authority, raising concerns over the lack of communication between introducing companies and transfer specialists.
Schemes benefit too
Nick Griggs, partner and head of corporate consulting at Barnett Waddingham, said that this can also help with administration costs in terms of the variety of different requests administrators are getting from different IFA firms.
Having a single firm in place means “you’re going to get consistent requests for information” and “that should make that process more efficient”, he said.
Where this kind of service is not available to members, Griggs said the ACA’s statistics regarding the percentage of employers who say members are struggling to find IFAs prepared to advise on pension transfers were unsurprising.
He suggested that people are struggling to find an IFA to advise on a DB transfer “because of the compliance requirements that have ramped up over the last few years”.
Moreover, personal indemnity insurers have picked on the fact that this is a big area of risk, involving large sums of money, and so “IFA firms are being charged a suitably high PI premium” for providing advice in this area.
