“Increasing the maximum compensation the FOS can grant from £150k to £350k will benefit a small number of individuals facing major losses, for example as a result of poor advice. Unfortunately, what is good news for this very small group of individuals could be bad news for the many thousands more who are seeking advice on whether it is in their interests to transfer out of a defined benefit pension. This is because the FCA’s decision is likely to have a major implications for the cost of advice. Financial advice is a requirement for anyone with a DB pension worth more than £30,000 so it’s essential people have access to advice, particularly as transferring won’t be the right thing to do for most people.
“The FCA suggests the changes could mean firms currently offering advice on DB transfers could face a 140% increase in already very expensive Professional Indemnity cover. This will inevitably lead to increased costs passed to customers. But even more worrying, the FCA predicts 1000 of the 2500 firms currently offering such advice will stop doing so. Neither of these developments are good news for customers needing professional advice.
“The FCA highlights that the number of people building up defined benefit pensions is diminishing. But there are still huge numbers who have previous entitlements which they might be considering transferring, for example to access pension freedoms. While there has been a recent drop in transfer activity, this is at least partly down to the lack of supply of advice, and shouldn’t be interpreted as a decline in demand.
“Well-intentioned action to compensate customers who’ve lost out as a result of poor advice could unfortunately create real problems for the vast majority of highly professional advisers wanting to meet their clients’ needs for advice on DB transfers. It’s vital that the FCA monitors closely the impacts of their decision and how PI insurers react. Otherwise, there could be widespread consumer detriment with thousands of individuals unable to get advice on what’s best for their retirement provision.”
|
