The Department for Work and Pensions will work with regulators, the Treasury and industry to consider if changes could be made to the requirement to take financial advice when transferring out of a defined benefit pension scheme, saying it wants to improve the pension saver experience. 

 

The department recently published its first statutory review of the requirement to take regulated financial advice when transferring out more than £30,000, introduced in 2015 regulations with the pension freedoms.  

 

The DWP has concluded that “whilst business impact has not exceeded the assumption, there is some evidence it may be a disproportionate response to low risk transfers some members wish to make”. 

 

It adds: “DWP will therefore conduct further work with the Pensions Regulator, the [Financial Conduct Authority], His Majesty’s Treasury and industry representatives to consider if changes could be implemented to improve the pension saver experience, without undermining the policy intent.”  

 

The DWP did not comment further on what this might entail, but responses to questions about possible amendments to the policy raised the £30,000 threshold and adviser costs as key issues. 

 

The £30,000 limit was considered a problem given the rising costs of providing advice, adviser availability, and transfer values increasing, according to the DWP. Transfer values have, however, fallen considerably since late 2021, according to the XPS Transfer Value Tracker. 

 

The other issue, raised by pension savers, is about adviser costs. “Most have stated that the relative cost of advice almost makes a transfer prohibitive,” the DWP says. 

  

It adds that “feedback from providers suggests advisers are increasingly reluctant to recommend giving up safeguarded benefits, following communications issued by the FCA and the concerns raised by bad advice being given in certain circumstances”.  

 

Regardless of rogue advisers or bad practice, the Pensions Regulator does not currently see transferring out as recommendable in most cases.  

 

On its website, it says about DB transfers: “We believe it is likely to be in the best financial interests of the majority of members to remain in their DB scheme... It is also unlikely that the application of best estimate assumptions used to calculate the transfer value would provide benefits of equal value to those given up.” 

 

The regulator’s interim executive director of regulatory policy, analysis and advice, Louise Davey, said the original intention behind the requirement was that DB scheme members truly understood the level of retirement security in the benefits provided and what they would lose if they decided to transfer out of that arrangement. 

 

Speaking at the Pensions Administration Standards Association’s annual conference on Tuesday, she offered little detail about the planned amendments, saying only: “The review has largely concluded that the policy objectives have been met, but there are plans to do some further work to consider whether any changes should be implemented to improve the saver experience without undermining policy intent.” 

 

Further reports reviewing the advice requirement must be published at least every five years. 

 

How could the saver experience be improved when it comes to the advice requirement?