Transfer advice regarding defined benefit pensions could be funded via DB pension rights, Royal London has suggested.
According to the firm, to ensure that consumers are not deterred from the cost of financial advice, they should have the option to fund transfer advice from their DB benefits.
As with the current scheme rules that enable DB schemes to debit the rights of members in respect to pension sharing after divorce or to enable ‘scheme pays’ pension tax relief charges, transfer advice could be debited in a similar way, Royal London said.
It noted that this change could assist scheme members who receive advice not to transfer, but have to do so simply to cover the cost of the advice.
Moreover, Royal London has also suggested that the £30,000 mandatory financial advice requirement on transfers should be increased to around £50,000. Instead those with bots below £50,000 should be required to engage with Pension Wise “for basic factual information”.
In addition, to tackle the problem of seeking financial advice and guidance too late, Royal London has voiced its support for the mid-life MOT. For many consumers, this could see members engage with financial advice and guidance, enabling them to make crucial decisions earlier, it said.
While high quality impartial advice is crucial for those transferring out of DB schemes, Royal London strategic marketing insight manager Robin Nimmo said, not all members will be able to meet advice costs.
“We believe that members should be allowed to set the cost of advice against their DB pension rights, ensuring they are not put off exploring their options by having to pay upfront costs,” he said.
Adding to this Nimmo commented: “Guidance also has an important role to play and for those with pots of below £50,000 it should become compulsory to ensure consumers access the Pension Wise service for basic factual information about their options.”