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A former senior executive at The Pensions Regulator has called for a relaxation of the £30,000 advice rule for DB pension transfers.
David Fairs, until recently the watchdog’s executive director of regulatory policy, said the current advice requirement was leading to a ‘tortuous and expensive process’, with members being quoted high advice fees or struggling to find an adviser.
As part of the pension freedoms legislation, there is a requirement to get financial advice if defined benefit (DB) pension members have a transfer value of more than £30,000 and want to transfer their pension so they can flexibly access their pot in a defined contribution scheme.
However, this level has not risen with inflation since 2015 and, with fewer advisers in the DB transfer market, people with small DB pensions can struggle to find cost-effective advice.
Fairs, now a partner at pensions consultancy LCP, quoted advice fees of £4,000 to £7,000 for transfer values of £40,000 to £60,000.
To address this, Fairs suggested two solutions:
• Each DB scheme to appoint an advice firm it carries out due diligence on and refers members to, with the cost of advice subsidised by the scheme.
• A requirement for schemes to offer their members access to drawdown, either in-house or via a third-party provider. Before accessing drawdown, members would not need to get advice but the trustees would have to arrange guidance and ensure ‘investment options were appropriate and that charges were fair’.
‘It is clear that the current process is painfully slow and has high levels of frictional costs and exposes members to some uncomfortable risks in cases where they have been left to find their own advice,’ Fairs said.
‘For the vast majority of members with benefits with a value in the range £30,000 to £70,000, the current process just does not work at all – a clear market failure for which action needs to be taken.’
The government was due to publish a review of the advice requirement by 6 April this year, but so far it has not reported back.
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