Steven Cameron, Aegon’s Pensions Director said: “With the latest set of regulatory interventions for Defined Benefit (DB) transfer advice coming into force, all eyes will be on the impact on not just the quality but quantity of advice on offer. The new rules were announced back in May and aim to further reduce the incidence of unsuitable advice in this key area. While well intentioned, the concern is that additional requirements may lead to more advisers stopping advising on such transfers.
“We’ve already seen a steady decline in the number of advisers prepared to offer DB transfer advice as a result of the perfect storm of heightened regulatory and political scrutiny and challenges in obtaining affordable Professional Indemnity Insurance cover. This week’s figures from the FCA’s Retirement Income Market Data show the number of DB transfers fell by 28% to 40,600. This fall came just ahead of the pandemic whose economic impact is seeing many people facing financial difficulty, redundancy or being retired early, some of whom might be particularly keen to explore their wider retirement options.
“The new measures apply where the advice process starts on or after 1 October, with a three month transitional period for where advice has already started. They include the banning of contingent charges, with some limited ‘carve outs’ for those in serious financial difficulty or with a specific life shortening condition. Those not eligible for carve out will have to be prepared to pay upfront for advice, whether or not this results in a recommendation to transfer, which could put some people off.
“The FCA has also strengthened the emphasis on recommending any transfer is into a workplace DC pension. An individual pension can only be recommended if the adviser can show it is not just as suitable, but more suitable than a workplace pension. Not all workplace pension schemes will meet the needs of those transferring large sums close to retirement. The default fund may not match their investment objectives or the scheme may not offer a full range of decumulation options. But advisers may have concerns that recommending alternatives will be challenged later by the FCA.
“A new form of ‘abridged advice’ also goes live on 1 October. This is designed to allow advisers to more quickly identify customers for whom transferring is unlikely to be suitable, at lower cost. We hope advisers will consider adding this to their advice propositions as a means of identifying the minority of clients who would benefit from full DB transfer advice.
“We hope the FCA keeps a close eye on the ongoing supply of DB transfer advice to ensure this stays sufficient to provide an effective market. It’s vital that individuals have the opportunity to explore transferring which while for many will be unsuitable, for others could offer a life-changing opportunity.”
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