Rules that ensure any retirement saver must take professional advice if they are looking for a direct benefit pension transfer of a fund worth £30,000 or more has triggered a market failure, a regulator has warned.
The Pensions Advisory Service CEO Michelle Cracknell explained the rule was introduced alongside pension freedoms in April 2015 to safeguard retirement savers switching money from a final salary scheme with the intention of drawing down on the pot.
“The £30,000 limit is causing a market failure and there are people who cannot find financial advisers for pots of £40,000,” she said, speaking to an audience of finance professionals at a direct benefit pension transfer conference.
“There is no reason why you as financial advisers should do business if it is not commercially viable.
“It might be that the FCA should look at other mechanisms to provide protection.”
“The £30,000 limit is arbitrary and just as many people below £30,000 would benefit from guidance as there are above £30,000 for whom a DB pension is neither here nor there because they have other benefits.”
Regulators are reportedly probing the high number of transfers from direct benefit pensions that guarantee inflation-linked retirement incomes.
They are concerned that savers will lose valuable income and benefits if they move out of a final salary pension scheme.
Where the money is going
Many of the transfers are triggered by employers offering enhanced transfer values to encourage members with large pots to take their liabilities off the books.
Another issue impacting demand for transfers is that direct benefit schemes do not offer pension freedoms and often only pay out from the age of 60 or 65 years old.
The money is going to direct contribution schemes such as SIPPs or offshore QROPS which offer payments from the age of 55 years old linked to pension freedoms. However, they do not come with a guaranteed retirement income or other benefits.
Direct contribution pension values are linked to the performance of investments in the underlying fund.