Rule changes to allow more people to benefit from “freedom and choice” in pensions has been called for by LCP partner, David Fairs.
In a blog, Fairs said while those with defined contribution pensions have been able to benefit from pension freedoms since 2015, there are “barriers” to those with defined benefit pensions from enjoying the same flexibility.
Fairs explained that, under pension freedoms legislation, anyone with a DB pension worth more than £30,000 is required to seek specialist financial advice before they can transfer their pension rights into a flexible DC arrangement.
But recently the supply of high quality advice has diminished and the cost of advice has soared.
As a result, members with more modest pots, such as in the £30,000 - £70,000 range, have found it "difficult" to source cost effective advice.
Fairs also pointed out that individual DB scheme members are “at risk” of falling prey to scammers when transferring money, and can find it hard to discern who is a good financial adviser and who might wish to take advantage of them.
As a solution, Fairs suggested that more DB schemes should appoint a nominated firm of suitably qualified transfer advisers who members can use with confidence that “due diligence” has been undertaken on the firm.
Even if the scheme only covers the set-up costs of the new advice arrangement, members will generally then pay far less for advice than if they source their own advice from a high street IFA, Fairs explained.
Fairs also suggested a change in the rules to allow people with modest DB pots to access drawdown under the umbrella of their DB arrangement, either directly or via a carefully chosen third party.
Under this solution, the obligation to take advice would be lifted where the option was within the same umbrella DB arrangement, but guidance would still be provided.
Fairs argued that this would benefit the member by offering a smoother process than transferring out of the trust altogether and having to source full financial advice.
However, it would still provide good protections for the member against being scammed or selecting an unsuitable or high cost product.
Fairs said: “It would be much better to start with a fresh look at the outcomes desired and design a process to get there.
“For members to put themselves through such a tortuous and expensive process clearly demonstrates that there is a need for flexibility beyond that currently offered by DB schemes.”
tom.dunstan@ft.com
