Almost half (44%) of advisers have seen an increase in insistent clients wanting to push ahead with defined benefit (DB) pension transfers despite their initial recommendation to keep their safeguarded benefits, according to research by Prudential.
Although initially against the idea of transferring, around half (51%) of those with insistent clients said they had still helped with the transfer after the client disagreed with their recommendation.
Advisers’ biggest concern for clients (at 61%) was the risk they took by giving up a guaranteed income for life, while a slightly lower proportion (56%) feared clients would face unnecessary tax bills as a result.
Earlier this week the Financial Conduct Authority’s (FCA) recent retirement review found more than half of withdrawn defined contribution pots were moved to other savings or investments, which the regulator warned could result in consumers paying too much tax.
Two-fifths (39%) of firms, however, were concerned about the risk of future liabilities if advice they give is contested, while one in six (17%) worried the cost of professional indemnity insurance would rise.
Rise in demand
According to Prudential, 81% of the 201 advisers surveyed reported an increase in requests for advice about transfers over the past year.
In response to the increase in demand and concern over the process, a third (34%) of advisory firms said they were considering applying for FCA permissions to undertake transfers, while less than a fifth said they already had the required permissions.
Despite this apparent intent, the pension provider said that, out of roughly 4,000 advisers who were appropriately qualified to undertake DB transfers, just 2,000 were prepared to do so.
The research also found nearly half of advisers (48%) do not believe transfer values will fall over the next five years and, in any case, believe high transfer values are not the only driver for transfer demand, with three-fifths suggesting increased flexibility was a major attraction for clients.
Prudential retirement expert Stan Russell said the research indicated interest in transferring final salary pension schemes had increased markedly over the past four years.
“This presents financial advisers with a dilemma,” he added. “The valuable benefits of a DB pension should not be given up lightly because it involves transferring investment and longevity risk from the employer to employee and is irreversible once complete.”
Russell said advisers needed to ensure their clients understood the risks of a transfer – including longevity, market volatility, inflation and taxation – as well as ensuring it was in the best interest of the clients. “If a client insists on a transfer, advisers must make sure they follow the process outlined by the regulator,” he added.
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