In a policy statement published by the Financial Conduct Authority (FCA) yesterday, the body said it had initially underestimated how many advisers would be needed to advise on new freedoms, now tripling its estimate from 45 to 130 advisers.
Pension transfers from defined benefit schemes over £30,000 now need to be signed off by a qualified pension transfer specialist.
This follows a consultation conducted in March involving consumer groups, trade bodies, firms, professional bodies and consultancies, of which the vast majority agreed that pension transfers should be carried out or checked by a specialist, particularly due to the “greater complexity” in advising clients to transfer from defined benefit schemes to defined contribution arrangements.
Many also expressed concerns around a potential shortfall in suitably qualified advisers, and around the access to and the cost of advice.
“We concluded that the position set out in our 2011 factsheet no longer provides an adequate level of consumer protection”
In 2011, the FCA said the requirement for a pension transfer specialist did not apply where pensions were transferred to crystallise benefits.
However, the pension freedoms introduced in April this year have given cause to change this requirement. “We concluded that the position set out in our 2011 factsheet no longer provides an adequate level of consumer protection,” said the FCA.
Higher than estimated
The FCA has also revised its cost estimates, calculating total one-off costs to firms of between £500,000 and £1.6m, compared to the £340,000 estimated in the original cost benefit analysis.
“We had based our one-off cost estimates on data available at the time of the original analysis, and we continue to think that many of the assumptions used then were valid,” the FCA said. “However, given the range of responses, we acknowledge that one-off costs could be higher than estimated.”
It also said its original estimate of 7.5 hours of advice needed for each pension transfer was actually insufficient, and is more likely to take twice as long.
The financial watchdog also said it original assumption that each hour of an adviser’s time would cost £29 could be double this due to the higher number of IFAs preparing for qualifications.
In February, the Pensions Schemes Bill was amended making it illegal for anyone looking to transfer out of a defined benefit pension scheme to seek advice from a pension adviser who is not authorised by the FCA.
Understandable
Roger Berry, managing director of pension provider, Concept Group, said the changes are understandable.
“The move to a mandatory FCA-regulated and qualified adviser does make sense when someone is looking to transfer away from a DB scheme.
“The difficulty is that there is generally a very significant change in the risks and benefits of moving to a DC arrangement,” he said. “In simple terms the member takes on investment risk but gets the option of passing on residual funds post death.
“Moving away from guaranteed benefits should only be done with expert advice”.
