Discussions with advisers for our recently published Advice in Decumulation report show that they consider transfer advice for retiring clients to be high-risk. The FCA has decided not to alter its ‘default’ position on DB transfers – advisers should assume a transfer is not in the individual’s best interests. This, coupled with the recent scandal over poor DB transfer advice with British steel workers, has led to many firms revising their DB advice processes.
This is perhaps why in our research we have seen a disparity between small and large firms offering advice. 60% of the smallest firms do not advise on transfers whilst only 14% of the largest firms steer clear. These larger firms have the compliance capabilities to be able to manage their liabilities.
DB transfers remain a growing trend in the market. Most advisers who advise on transfers recorded an increase in the volume of their transfer business. According to the FCA, the value of transfers doubled last year to £21bn, whilst the volume increased 50% to 92,000 transfers. Continued low interest rates and low gilt yields have generated these high transfer values. The pension freedoms have also made pension benefits inheritable outside the UK inheritance tax scheme.
Indeed, DB transfers have polarised advisers and the regulator takes an active interest on the issue. However, this is a market with a growing demand and one in which clients at and in retirement are actively turning to advisers for advice.