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Push for DB transfers, despite advice

21 July 2017

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More than 80% of advisers report an increase in questions for Defined Benefit (DB) pensions advice, according to new research from Prudential.

The research also showed more than two out of five advisers (44%) 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%) say they have helped with the transfer after their recommendation was over-ruled.

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

Stan Russell, retirement expert at Prudential, said: "Our research shows that, although most 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."

Russell went onto say that the trend leaves 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 and is irreversible once complete."

"Advisers needs to ensure their clients understand the risks of a transfer, including longevity, market volatility, inflation, taxation - and ensure it is in the best interests of clients."

The survey also showed that around 39% of firms, 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.

Prudential said firms are responding by ensuring they have the right Financial Conduct Authority permissions to conduct transfers.

Prudential's research found about 34% of firms are considering increasing the permissions they have while 17% say they already have the required permission.

First published 21.07.2017

Lindsay.sharman@wilmingtonplc.com