Is time running out for UK expats who want to transfer their defined benefit pensions?
The FCA has been cracking down on poor financial advice in the defined benefit transfer market for a few years since the British Steel scam was brought to light. Unfortunately, not all advice is sound. A growing number of retirees have either seen their defined benefit pensions transfer to alternative arrangements that have ultimately put them in a worse position, or fallen victim to a scam. Fortunately, many firms out there are doing the right thing, although it can prove difficult for retirees to understand the difference between sound advice and poor advice if the FCA doesn’t have confidence in the market.
Are the FCA tackling the right issue?
The FCA is taking a strong view on whether the advice is deemed suitable with a particular interest in reviewing the statistics of clients that are transferring against the advice of the pension transfer specialist and whether this should be allowed. This is increasing the risk in an already high-risk market for insurance companies that provide professional indemnity (PI). Ultimately, the negative effects of increasing costs to transfer a DB pension has been passed to the client, as huge increases to PI costs for firms providing DB transfer advice has either led to an increase in costs for DB report or the closure of the firm. Firms that provide DB advice to non-UK residents has shrunk to less than a handful as PI insurance is even more expensive globally which has led to many clients being no longer able to receive the advice they want.
What does the future hold for DB transfer advice?
Whether firms are closing down due to providing poor advice, or simply because the market is no longer profitable, is reducing competition in the market and making it more difficult for clients to find and receive the right advice. There is a growing concern that this marketplace has a limited lifespan with time running out for clients who want to consider a transfer away from a DB pension. For firms to have confidence in the longevity of the market, clearer guidelines need to be made from the FCA to retain the statutory right to transfer a DB pension, whilst at the same time ensuring that firms understand what is expected from them to provide the correct advice.
This communication is not intended to constitute, and should not be construed as, investment advice, investment recommendations or investment research. You should seek advice from a professional adviser before embarking on any financial planning activity.
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