Why is UK Defined Benefit pension transfer advice so expensive? UK Defined Benefit Transfer Advice has steadily been increasing over the last few years. This article will look into the reasons for this.
Importantly, we are not assessing the reasons for the transfer. This is solely looking at costs associated with a transfer.
UK Defined Benefit Transfer Background
If you hold a UK Defined Benefit pension scheme and the Cash Equivalent Transfer Value (CETV) is over £30,000, you legally require financial advice from a Financial Conduct Authority (FCA) authorised and regulated adviser.
This Pension Transfer Specialist will assess the scheme particulars including your own personal and financial position before making a recommendation whether to transfer out of the scheme or not.
Importantly, The FCA states that the UK adviser should start from a position of ‘the transfer is unsuitable and you should retain the scheme benefits’.
Why is UK Defined Benefit pension transfer advice so expensive?
Claims Companies – Much like the misselling of PPI cover, there has been a number of pension transfers completed for members of DB schemes who should not have transferred out. As a result, claims management companies have aggressively entered the market. Working on a no win no fee basis they pursue UK advisers for previous advice given. This results in long drawn out cases, via the Financial Ombudsman Service. This, in turn, takes considerable time, effort and expense by the company. The cost is covered by the companies Professional Indemnity Insurance.
Professional Indemnity Insurance – PI cover is a mandatory requirement for any UK firm wanting to provide advice on Defined Benefit Transfers. Premiums have been consistently rising at an alarming rate. This is a direct response to operating in the high-risk sector of pension transfer advice. They were further pushed up after the Pensions Regulator became concerned about improper advice. This subsequently increased the number of claims.
High Operating Costs – The additional costs incurred are built into the adviser’s fees to ensure the business is still viable. Not only are the operating costs higher but the length of reports now total over150 pages. Combined with additional pre and post report call requirements, the work entailed in producing a Suitability report is very time-intensive.
Short supply – Simply put there is a shortage of professionals working in this area. Over the last 3 years, the number of transfer pension specialists in the UK has reduced by over 40%. Combined with the increased demand due to the record Defined Benefit values, it is a simple supply and demand issue.
Additional costs for Non-UK residents
For non-UK residents, you are in an even more difficult position. Due to licensing requirements, specifically the ‘passporting’ out of the UK into another country. If you are an expat, you cannot directly receive advice from a UK, FCA authorised adviser.
As such, you will need to work with a cross border adviser who is regulated in the country in which you reside. The UK adviser will provide advice on the suitability of retaining the benefits of the scheme or transferring out. Your local adviser will then advise you on the end solution and an ongoing basis.
With an additional adviser required, there are going to be additional costs.
In summary, as the costs for advisers increase, so will the cost of the advice they provide. Exasperated by the ever-decreasing number of professionals in the industry, the costs for Defined Benefit Transfers will continue to rise.
If you have questions about Defined Benefit transfer fees please feel free to get in touch.