With the new pension freedoms having been in force for four weeks, some financial advisers are reporting that clients are asking them to sign declarations stating they have provided advice on a pension transfer, when in fact no such thing has occurred.
Initially, the new freedoms would have excluded clients in final salary (defined benefit) schemes. This was later relaxed, and final salary scheme members are now allowed to transfer their pension fund to a money purchase (defined contribution) scheme, from which they are free to access the cash as they wished from age 55.
However, clients with more than £30,000 in a final salary scheme need to seek regulated financial advice (not just guidance from the Government’s Pension Wise service) before proceeding with the transfer, although there is actually no requirement for the client to follow the advice given in these circumstances.
The pension provider would be expected to ask for evidence that advice has been sought before allowing the transfer to proceed. The client requests that advisers are reporting relate to simply wanting a declaration to be signed, and not actually requiring any advice, which would attract an advice fee.
Lee Tomkins of Taunton-based Blackdown Financial Independent Financial Advisers said:
“[fusion_builder_container hundred_percent=”yes” overflow=”visible”][fusion_builder_row][fusion_builder_column type=”1_1″ background_position=”left top” background_color=”” border_size=”” border_color=”” border_style=”solid” spacing=”yes” background_image=”” background_repeat=”no-repeat” padding=”” margin_top=”0px” margin_bottom=”0px” class=”” id=”” animation_type=”” animation_speed=”0.3″ animation_direction=”left” hide_on_mobile=”no” center_content=”no” min_height=”none”][These clients] don’t really want advice, just the money, but the provider won’t let them have the money without a letter saying they have received advice. It looks like this ‘pension freedom’ isn’t quite the freedom they were expecting.”
Hopefully it goes without saying that no financial adviser should complete a false declaration on any issue.
This is a separate issue from that of ‘insistent clients’ who wish to access their pension pot in a different way to that recommended by their adviser. Insistent clients are those that do take advice, but then choose to disregard it. Advisers are reporting that clients are contacting them seeking to withdraw more than the 25% tax free lump sum from their pension fund, regardless of the consequences this might have in terms of eroding the pension fund and/or pushing them into a higher income tax band.
Keith Richards, chief executive of the trade association the Personal Finance Society, has advised his members not to process insistent client cases. He has called on the Government to guarantee that advisers would not be held liable for any future complaints from insistent pension clients, and that such clients would not be able to access the Financial Services Compensation Scheme, and only then would he change his advice.
If not implementing a complete ban on insistent clients, firms should at the very least keep clear records of the advice they give, and the reasons for this.
One thing is clear – the new pension freedoms have not made life any easier for financial advisers.
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.