Accessing advice
Advice on any defined benefit transfer is compulsory if the transfer is over £30,000. However, due to the number of advisers providing advice falling from 3,000 to 1,160 in the last 3 years, finding a specialist adviser is becoming more difficult, the costs are rising and the risk to members considering a transfer are growing every day.
But, what are the key risks for members?
Not being able to access high quality advice
Despite many episodes of inappropriate advice in the DB transfer advice market, the latest of which being in relation to British Steel Pension Scheme members, the quality of advice provided still varies greatly between advisers. Unfortunately, solely relying on an adviser having the specialist FCA permissions to provide the advice, does not mean the member will always receive optimal advice.
Deciding whether to take advice in the first place
Advice has become much more expensive due to the reduction in advisers and mounting costs for those that remain. The cost of advice is the same whether the recommendation is to transfer or remain in the scheme.
The FCA is clear that remaining in the scheme will be the best option for most members and depending on a member’s circumstances they may fall into one of two categories.
• Clearly not in their best interests to transfer
• Possibly in their interests and advice should be considered
It is relatively simple to educate members whether they are very likely to fall in the first category. This can be done before any cost is incurred and without crossing the line of inadvertently providing advice.
Advice to stay in the scheme is very valuable, but the majority of members may not view it as such. Therefore, clearly many members will wish to understand if they fall into the first category before paying for advice.
Falling victim to a scam
Given rising costs and the difficulty in obtaining advice, members are more susceptible to scams. This is due to the difficulty in finding advice, without direct access to high quality advisers, or as they look for options which may appear cheaper routes to provide them with the outcome they desire.
There have been great strides in helping members avoid scams including new scam check requirements on any receiving vehicles, but the risk remains very real.
However, as stated above, for nearly all defined benefit transfers to take place, advice is a legal requirement. A scam transfer can’t happen where good advice from an experienced transfer adviser on an appropriate receiving vehicle has been provided and followed. Given this, should we be looking to address the issue earlier?
Solutions to the problem
Schemes should ensure that members can get access easily to high quality advice. They can no longer leave members to figure it out themselves, by simply pointing members to an adviser directory.
In addition, before embarking on what could be a costly and unnecessary process, the member must be able to understand if transfer advice is right for them, or if general financial planning, or even free guidance, is a better fit for their circumstances. It is now clear that it is possible to provide this understanding through a personalised guidance journey (without breaking regulatory boundaries).
Where members do decide to take transfer advice, they must be signposted to experienced, monitored transfer specialists, all under independent governance oversight, rather than a simple directory.
The above solution should be the preferred default route for trustees if advisers are not appointed directly. It removes the risks highlighted and can be achieved at no additional cost to the scheme or member.
The FCA and the government state that they believe that it is vital consumers receive suitable advice in this market. We believe that they should encourage trustees to signpost a route as set out above, or appoint their own adviser. This is clearly preferable to leaving members to try to find high quality advice on their own, in what is clearly an ever shrinking market with growing risks for members.
Kevin Hollister, is a pensions actuary, founder of Guiide and Guiide DB and contributes to the Institute and Faculty of Actuaries working party on decumulation.
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