One of the main financial advisers’ trade associations has given evidence to Parliament regarding how the system of delivering pension freedoms guidance and advice to consumers is working.
Much of the submission from the Association of Professional Financial Advisers (APFA) to the Work & Pensions Select Committee concentrates on the costs of regulation firms are facing. This is said to be driving up the fees firms need to charge to their clients at the very time that many people genuinely need advice on their retirement income options.
Guidance for those aged 55 or over is available free of charge via the Pension Wise service, but this can only provide generic information and is unable to recommend specific courses of action, thus falling short of the service a regulated financial adviser can offer. Furthermore, anyone wishing to switch from a defined benefit (final salary) scheme to a defined contribution (money purchase) scheme must consult a regulated adviser. Such a transfer will not be in the best interests of many consumers, but defined benefit pension scheme members cannot take advantage of the freedoms without switching.
Research of APFA members by NMG Consulting shows that 87% of advisers have been contacted by clients wishing to obtain advice on the pension freedoms. The average number of enquiries received by each adviser on the subject was eight. 55% have received enquiries about switching from defined benefit to defined contribution.
The Association’s evidence says that many consumers are attracted to the idea of making partial withdrawals, while leaving the remainder of their pension savings in a drawdown policy, where it can continue growing.
Other issues mentioned by APFA include:
• 40% of advisers have no interest in signing up to the Money Advice Service directory of retirement advisers, either because they have no capacity to take on more clients, or see pension freedoms clients as incompatible with their client base
• There is concern over the liabilities firms could incur by advising a client to switching out of a defined benefit pension, or to give up some form of safeguarded benefit
• It believes that the Financial Conduct Authority and Financial Ombudsman Service should provide a guarantee that there will be no risk of being held liable for client losses when processing transactions for ‘insistent clients’, i.e. those that receive advice but then choose to take a different course of action. It believes that such clients will become more common in the new pensions landscape
Aegon has recently announced that its customers cannot make partial withdrawals from their pension funds unless they have obtained financial advice first.
Chris Hannant, APFA Director General, said:
“Much more needs to be done to help consumers access financial advice. Our research indicates there is an appetite for advice out there, but this isn’t always translating into people receiving advice. We need to lower the cost of regulation to lower the price that clients have to pay.
“We have welcomed the government’s review of the financial advice market because we believe that more needs to be done to enable access to advice. There needs to be a fundamental rethink of the current regulatory environment, particularly around liability. Most barriers to a thriving and varied advice sector come from unfair rules surrounding liability, including: the lack of a ‘longstop’ for advisers and the levy approach of the Financial Services Compensation Scheme which penalises regulated advisers for those unregulated investments which go wrong as well as imposing an unpredictable and seemingly ever-increasing fee burden.”
The information shown in this article was correct at the time of publication. Articles are not routinely reviewed and as such are not updated. Please be aware the facts, circumstances or legal position may change after publication of the article.