DB to DC allowed but advice mandatory

Transfers from private sector defined benefit schemes to defined contribution pension schemes will be allowed to continue but only where full financial advice has been given, the Treasury has announced today.

Two new safeguards are being introduced to protect both individuals and pension schemes: a new requirement for an individual to take advice from an impartial financial adviser regulated by the FCA before a transfer can be accepted, and new guidance for trustees on the use of their existing powers to delay transfer payments and take account of scheme funding levels when deciding on transfer values.

Some advisory firms have attacked the requirement for advice as adding an unnecessary layer of cost.

A new override will be introduced to make sure that pensions schemes offer individuals flexible access to their savings, says the Treasury.

Advisers anticipate an increase in the number of DB to DC transfers as consumers increasingly understand the flexibility on offer in the new system.

Broadstone actuarial director John Broome Saunders says: “We have no problem with encouraging or facilitating advice, but making it compulsory is a step too far. If the Government really believes in flexibility and choice, they should be brave enough to allow individuals to make their own financial decisions. Since there will be no requirement to take heed of advice given, for many the requirement to take advice will simply be an annoying impediment – and a potentially significant cost – to transferring to a DC scheme.”

Intelligent Pensions technical director David Trenner says: “Allowing transfers to continue unaltered would put additional strains on trustees of DB schemes. At present there are a number of cases with the Pensions Ombudsman regarding Pension Liberation: in some cases trustees are facing complaints that they blocked transfers, but in others the complaint is that they allowed them. We would not want to see trustees facing similar problems where members were transferring solely to take advantage of the new flexibility.”