Pension transfer advice is under threat and may become scarce without action by regulators and pension schemes, according to new research. 

A report by pension consultants LCP and Aviva found that the number of advisers willing to offer individual DB pension transfer advice was shrinking rapidly.

The survey found that 1 in 3 advisers offering pension transfer advice were “unsure” that they would still be providing advice in a year’s time or had already decided to pull out of the market. 

The number of advisers willing to offer pension transfer advice has already halved from just over 3,000 in autumn 2018 to around 1,500 at the start of 2021, FCA figures show.

The research report - 'Mind the Transfer Advice Gap - found that among a sample of ‘high street’ financial advice firms, the biggest reasons given for pulling out were the cost and availability of Professional Indemnity (PI) insurance, the financial risks associated with transfer advice and the "perceived hostility" of regulators to DB transfers.   

The FCA is reviewing the suitability of pension transfer advice given evidence that too many unsuitable transfers may have been carried out in the past.

The research comprised a survey of 200 financial advisers currently or recently active in giving DB transfer advice and in-depth interviews with seven advice firms regularly appointed by pension schemes to provide advice to members. These firms provided advice on over 1 in 5 DB transfers last year.

Some firms cited the abolition of ‘contingent’ charging in October 2020 as a reason for pulling out of the market. The ban meant the FCA stopped advice that only resulted in clients paying a fee to an adviser when a transfer went ahead. This now means clients have to pay for advice, whether or not they are recommended to transfer.

As a result of the contingent transfer ban a growing numbers of schemes are instead appointing IFA firms for members to use if they want advice. 

The research also looked at why DB scheme members want to transfer. Health concerns have grown in importance due to the pandemic. Advisers also said they now often recommended using part of transferred funds to buy an annuity to reduce risk.  

Alistair McQueen, head of savings and retirement at Aviva, said: “Individually-sought advice continues to be the backbone of the DB transfer advice market, but it is a market under strain. 

“The supply of quality ‘high street’ DB advice is in retreat, leaving many individuals isolated. The industry and its regulators must work together to ensure that those seeking DB advice are not left stranded and exposed. Nature abhors a vacuum, and this advice vacuum is dangerous.”

Report co-author Steve Webb, partner at LCP, said: “It is becoming increasingly difficult for members to source affordable transfer advice and this means that schemes and regulators need to do more.”

The full report: “Mind the transfer advice gap” is available at www.lcp.uk.com 

• A 60 minute webinar on the report will take place on Weds 6 Oct. Details here: Mind the transfer advice gap – new research from LCP and Aviva on the market for DB transfer advice | Lane Clark & Peacock LLP).