Advisers worried as clients disagree with pension transfer recommendations

The number of people transferring from defined benefit (DB) schemes to personal pensions amounted to some 80,000 transfers last tax year, according to the Financial Conduct Authority (FCA).

But having reviewed a very small sample of 88 DB transfers since 2015, the FCA has raised concerns that only half of transfers are suitable.

Financial advice is required for all transfers where the transfer value exceeds £30,000. However, nearly half of advisers have seen an increase in situations where their clients insisted on the transfer in the face of advice to the contrary, according to a survey of 102 advisers conducted by pension specialist Momentum Pensions.

The research found that for nearly two out of three advisers, the biggest concern about DB transfers is the risk of future complaints by clients after they have contested advice.

Almost 60 per cent of advisers would support legislation to stipulate that the investment vehicles into which DB funds are transferred should include capital protection and hedges against inflation and volatility.

Further, 53 per cent say their biggest fear for consumers who transfer is that they are surrendering a guaranteed income for life, while almost 50 per cent worry that customers do not understand the investment risks of moving into defined contribution pensions.

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John McCreadie, head of sales at Momentum Pensions, says: ‘It is a real issue for advisers faced by clients who are insistent on moving, in order to benefit from relatively high transfer values and the perceived increased flexibility of Sipps and [investment-based] defined contribution 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.’

However, while they are worried about the risk of inappropriate transfers occurring as a result of clients’ insistence, advisers are aware that transfers have been an important source of business for them, and 60 per cent said they were concerned about the potential impact on their business if transfers dry up.

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