The most positive results are that the rates at which people are being advised to transfer out of their Defined Benefit pension scheme have fallen since previous statistics. Given that regulators expect advisers to start from the assumption that a transfer is not in a member’s interest, the FCA has in the past expressed a concern at the high rate of recommendations for transfers. However, the latest figures show that the ‘conversion rate’ (the percentage of those who seek advice who are advised to transfer) peaked at 72% in 2017, but now (six months to March 2020) stands at 54%.
Also encouraging is that the proportion of ‘insistent clients’, who demand to transfer despite a recommendation to the contrary has fallen.
However, the data also highlights some worrying trends – trends which are likely to continue.
The first is the declining supply of advisers in the DB transfer market. The first data request by the FCA in October 2018 was sent to 3042 firms with DB transfer advice. The most recent request in July 2020 was sent to 1965 firms with DB transfer advice, and the FCA report just 1521 firms with DB transfer permissions as at January 2021. Given that the FCA data shows that most advisers used to charge for DB transfer advice on a ‘contingent’ basis and that contingent charging was banned with effect from 1st October 2020, this is likely to lead to further exits from the market.
A second concern is the very small percentage of transfers which are made into workplace pensions. Many people who transfer out of a DB pension will be under state pension age and may well be active members of a charge-capped workplace pension scheme as a result of automatic enrolment. FCA now requires advisers to benchmark a proposed destination for the transferred funds against a low-cost workplace pension option. But the FCA data shows just 1% of transferred funds currently end up in a workplace pension, which shows how big a change it will be for advisers to be expected to actively consider a workplace pension as a destination for transferred funds.
Commenting on the figures, Steve Webb, partner at LCP said: “It is a welcome trend that historically high rates of recommendations to transfer out of Defined Benefit pension schemes are now on the decrease. But the DB transfer market remains a source of real concern. The supply of advisers has fallen dramatically in recent years, and recent regulatory changes plus the cost of obtaining insurance is likely to reinforce this trend. Members are likely to find it increasingly difficult to source high quality impartial advice if left to their own devices. This data reinforces the case for pension schemes to appoint one or more high quality advice firms to help members make good choices about pension transfers”.
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