Wednesday, 11 October 2017 11:34

Advisers warn about rise in ‘insistent’ DB transfer clients

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Momentum Pensions Momentum Pensions

Financial advisers say they are experiencing an increase in insistent clients disagreeing with their recommendations on defined benefit pension transfers

Research from pension specialist and SIPP provider Momentum Pensions has found that 47% of advisers have seen a rise in insistent DB pension transfer clients over the past year and nearly two out of three (63%) advisers say their biggest concern about DB business is the risk of future liabilities from contested advice.

The concerns come against a backdrop of the FCA warning that fewer than half the transfer cases it had reviewed recently in a sample study were ranked as suitable and it has stressed that advice has to be ‘holistic’ looking at clients’ overall circumstances and ‘bespoke’ for investment, product and benefit solutions.

Momentum Pensions’s survey of 102 pension advisers conducted in September found that 58% of advisers would support legislation to stipulate the investment vehicles DB funds are transferred into including capital protection and hedges against inflation and volatility.

Around 53% of adviser say their biggest fear for consumers who transfer is that they are surrendering a guaranteed income for life while 48% worry that customers do not understand the investment risks of moving into defined contribution pensions.

Momentum says it believes the FCA focus on transfers means ‘one size fits all’ approaches are no longer valid.

John McCreadie, head of sales (UK), Momentum Pensions, said: “There is clearly strong demand for DB transfers with The Pensions Regulator estimating around 80,000 transfers a year with up to £50 billion moved over two years. It is a real issue for advisers faced by clients who are insistent on moving to benefit from relatively high transfer values and the perceived increased flexibility of SIPPs and DC schemes.

“DB schemes pensions offer valuable benefits and anyone transferring should be looking for choice and value from their investment selection as well as full flexibility and a range of ways of accessing the solution.”

The research also revealed that 48% of advisers were concerned about the “disconnect” between the FCA and The Pensions Regulator on best practice regarding DB transfers while 42% were worried about a rise in the cost of professional Indemnity insurance from more transfers.

However, advisers are well aware that the rise in DB transfer business over the past two years has been an important source of business – around 60% said they were concerned about the potential impact on their business if transfers dry up.

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