‘Insistent clients’ pile on the DB transfer pressure – Prudential

Stan Russell

Stan Russell

High transfer values for final salary schemes are piling the pressure on advisers as insistent clients disagree with their recommendations, according to new research from Prudential.

The firm, which employs more than 2,000 workers at its Stirling base, found that more than two out of five of advisers (44 per cent) have seen a rise in the past year in the number of insistent clients wanting to push ahead with defined benefit pension transfers despite recommendations against. About half of advisers with insistent clients (51 per cent) say they have helped with the transfer after their recommendation was over-ruled.

The biggest concern of advisers (61 per cent) about the impact of defined benefit transfers on consumers is the risk of giving up a guaranteed income for life, while 56 per cent fear clients will face unnecessary tax bills as a result.

Around 39 per cent of firms, however, are concerned about the risk of future liabilities if advice they give is contested while 17 per cent are concerned the cost of professional indemnity insurance will rise.

Firms are responding by ensuring they have the right Financial Conduct Authority permissions to conduct transfers. Prudential’s research found about 34 per cent of firms are considering increasing the permissions they have while 17 per cent say they already have the required permission.

The rise in enquiries about defined benefit transfers is highlighted by the study. About 81 per cent of advisers questioned report an increase in requests for advice about transfers over the past year.

Nearly half of advisers (48 per cent) do not believe transfer values will fall over the next five years and in any case believe that high transfer values are not the only driver for transfer demand with 58 per cent saying increased flexibility is a major attraction for clients.

Stan Russell, retirement expert at Prudential in Edinburgh, said:  “Prudential’s research indicates that although the majority of defined benefit scheme members are wary of transfers, interest in transferring final salary pensions schemes has increased markedly over the past four years.

“Relatively high transfer values and the fact that pensions can be left as part of an inheritance are among the main reasons why clients might insist on a transfer, even if it is not in their best interests.

“This presents financial advisers with a dilemma. The valuable benefits of a defined benefit 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.

“Advisers need to ensure that their clients understand the risks of a transfer – including longevity, market volatility, inflation, taxation – and ensure it is in the best interest of clients. They also need to check if the scheme offers a partial transfer before proceeding with a recommendation. If a client insists on a transfer, advisers must make sure they follow the process outlined by the Regulator.”

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