DB Transfer Message Is Confusing For Pension Savers

The fuss about transfers from direct benefit pensions shows no sign of abating despite action by consumer watchdogs to cool the market.

The Financial Conduct Authority is writing to nearly 1,700 IFAs involved in arranging the transfers telling them to improve their advice.

The FCA starting point is a DB transfer is unwise for most retirement savers as their new scheme is unlikely to replace pension guarantees and lost benefits.

After a deep investigation of DB transfer advice, the FCA found that only 29% of switches between schemes were properly documented and much of the advice was considered unsuitable for clients.

Advisers recommended 69% of clients to transfer out of their DB schemes.

The other advice issues involved unclear charges for pension advice, making ongoing advice seem mandatory instead of voluntary and recommending investments that came with such high fees they left clients at risk of losing money.

Sanctions and fines

Advisers who fail to up their game after receiving a letter are likely to face sanctions from wrist-slapping to fines and suspension of their licence to give pension advice.

Meanwhile, new research shows that one in 10 FTSE350 firms – Britain’s biggest private employers – have encouraged employees to transfer out of their DB schemes over the past four years.

The data from business consultancy Barnett Waddingham says the buy-outs have slashed FTSE350 pension deficits by around £2.5 billion.

The report points out that while pension savers transferring out of the scheme gain a handsome golden goodbye, independence and flexibility for their retirement cash, the companies improve their scheme’s funding position while stripping out expensive future liabilities.

DB transfers in numbers

“It is important that members are making transfer decisions that are in their best interests,” reads the study.

“As such, there is an increased focus in the industry to regularly review transfer terms in order to help scheme members, offering transfers at retirement and providing members with access to advice on the best options available to them.“

The value of transfers dropped last year to £9.8 billion from £14.2 billion a year earlier, but is still running at double the amount of the £5 billion of transfers in 2016.

The average DB pension transfer in September was around £260,000.

So what is the message for pension savers? Is a DB transfer a good or bad decision and why are advisers and FTSE companies pushing for a switch when the regulator seems against the idea?

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