City-based Tideway is concerned this is being driven by what it calls the FCA’s “negative stance” on DB transfers that “could also create adviser bias towards recommending consumers to stay in schemes”.
Responding to the FCA’s recent consultation paper on DB transfer advice, Tideway’s research counters the regulator’s assessment of potential consumer harm and negative stance on the benefits of DB transfers which Tideway argues ignores the “significant economic benefit brought to many consumers who transfer”.
Tideway Partner James Baxter said: “If you took 100 people with personal pension funds they had saved and accumulated through a long career and asked them if they would like to swap them for the equivalent defined benefits in the RBS scheme based on current transfer values, we don’t think you would have any takers, nor any advisers telling you to do it.”
Tideway calculated that after adjusting for the tax-free cash sum, the target investment return needed to match the scheme benefits to age 100 using flexible drawdown in retirement is going to be around half the rate of inflation for most people transferring out of this scheme.
Mr Baxter added: “It’s a return equivalent to about 1% a year with current inflation, and there would be no need to invest in equities to beat this hurdle.
“Only if you really don’t trust yourself with looking after the money post transfer would you stay in this scheme.
“This is in stark contrast to FCA’s most people will be best advised not to transfer.”
Whilst the RBS scheme is one of the UK's largest DB pension schemes there are others making what Tideway said were “generous offers” including schemes from BAT, L&G, Asda and NTL.
“Some of these schemes are heading to, or completing buy outs with bulk annuity insurance companies, a trend we see increasing.
“This is when transfer offers usually get extremely generous as the trustees ‘de risk’ the schemes portfolio lowering the investment discount rate used to calculate transfer offers,” said Mr Baxter.
He concluded: “We understand the need to protect consumers and to improve advice standards on transfers, we are fully behind the FCA’s efforts on this.
“However, we are concerned about generalisations on the merits of transfers when the range of offers is so large.”
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