Jon Hatchett, Partner and Head of Corporate DB at Hymans Robertson, the leading independent pensions, benefits and risk consultancy, said:
“We welcome the FCA’s consultation announced today. We agree that in many cases transferring from DB-DC may not be in the member’s best interests and ensuring independent advice is taken is a crucial protection to protect people from making poor decisions.
“DB to DC transfers will appeal to a broad range of people. For some, making the full switch to DC could make sense on a purely economic basis, particularly if they don’t have a spouse, are in poor health or have another, better source of retirement income. For others it will be the simple emotional appeal of having the flexibility to do what they want with pension savings. Whether it’s to pay off debts, or to give children a foot-up on the housing ladder, being able to access money more rapidly will appeal to many, even if in some cases it’s not the most prudent course of action.
“Individuals need clear information on the risks that go alongside the Government’s reforms. Once you transfer out, you can’t go back. Once you’ve spent the money, it’s gone. It’s of paramount importance that they understand the implications and risks of the choices they make.
“Added to that, when in DC, individuals will be faced with a plethora of options. The picture is far more complicated than many realise, particularly from a tax point of view. It won’t be as simple as most people expect.
“Good quality independent advice is a crucial step for many who are considering transferring out of DB schemes. However, advice is expensive and our evidence shows that individuals generally are not willing to pay the market rate for it. Last year we found that 57% of people would ensure that they make the right decisions by ‘doing it themselves’. Only 22% said they’d be willing to pay for external advice and even then they are only prepared to spend £37 on average for it.
“We expect around a third of DB scheme members will take a transfer. Delivering advice to the numbers involved will prove costly. One way to balance this need and manage costs would be to engage with scheme members, filter out those that are unlikely to do anything, and only target those who may benefit from a transfer. Technology can help educate members, and carry out this filtering process so advice is targeted at those who need it.
“We welcome the FCA’s review, and agree that advisers need specialist knowledge to work in this area. However, we think the FCA, in combination with tPR, should go further in considering the cost effective use of technology to support member engagement with their options as they plan their retirement. This would be to supplement and improve independent financial advice, not replace it.”
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