11 June 2019
Good news in the world of DB transfer values – a new gold standard for advice, the introduction of higher compensation limits from the Financial Ombudsman Service and tighter underwriting from PI insurers are all pushing in the same direction – the pensions transfer market is becoming more specialist, and not before time.
Our most recent quarterly survey has found that numbers of transfer quotations have continued to decline compared to the extraordinary levels seen in 2017. Additionally, although transfer values remain high as bond yields stay low, the number of members transferring out has also reduced over recent quarters. This is similar experience to what financial advisers tell us anecdotally.
Perhaps members are better understanding the risks involved in transferring out from DB pension schemes and having to manage a substantial DC investment portfolio themselves. Could it also be that they are getting better financial advice from a narrower range of more specialist advisers?
We welcome recent and upcoming developments which are improving the quality of pensions advice and which will have the added effect of reducing the numbers of financial advisers in this space, thereby focusing on a smaller number of advisers who are likely to be more confident in the quality of their advice and processes:
- The Pensions Transfers Gold Standard is a new voluntary code backed by the Personal Finance Society and financial services industry heavyweights which brings reassurance that those advisers who sign up commit to having the right qualifications, following robust processes and ensuring client understanding and acceptance of all charges. Around 600 firms have signed up to date.
- The compensation limit set by the Financial Ombudsman Service, responsible for resolving complaints between financial services businesses and their customers, will rise from £150,000 to £350,000 for complaints made after 1 April 2019. Good news for those bringing a complaint – food for thought for those advisers who are unable to evidence robust advice.
- Financial advisers also tell us that Professional Indemnity Insurers have increased premiums and individual firms’ excesses and are paying much more attention to advisers’ processes when deciding whether to offer insurance for pensions transfer business. This is improving standards and reducing the number of advisers offering this business.
- The pensions transfer template will be published soon by the Pension Administration Standards Association (PASA), as part of a guide to good practice on DB to defined contribution transfers. This standardised information template should help financial advisers to get all the information they need from scheme administrators to allow advisers to give the right advice to clients.
So, the industry is moving in the right direction, might this be the right time to consider whether your scheme should partner with a specialist pensions financial adviser firm to help members understand their options as they approach retirement? LCP has advised many pension scheme trustee boards on short-listing and selecting adviser firms, and we believe this can be a really cost-effective way of improving outcomes for members.