50% DB transfer value rise led to contingent charging ban proposal - AJ Bell

The average value of defined benefit pension transfers increased by 50 per cent in the two years following the introduction of pensions freedoms, a freedom of information request from AJ Bell has revealed.

Between 30 September 2015 and 2017, the average transfer value increased from £258,109 to £389,545.

The proportion of advice that recommended clients to transfer also increased during this period, from 57 per cent to 72 per cent.

AJ Bell chief executive, Andy Bell, said that the surge in pension transfer activity and proportion of positive recommendations was “undoubtedly” behind the Financial Conduct Authority’s (FCA) decision to propose a ban on contingent charging.

The FCA proposed banning contingent charging by advisers on both DB and DC transfers in July 2019, as it wants to change how advisers manage and deliver pension transfer advice.

Commenting on the findings, Bell said that the increasing transfer values and positive transfer recommendations “makes perfect sense” and suggests that the market is operating “better than the FCA thinks”.

He continued: “The regulator’s starting position is that a transfer is not in the interests of most people but there are perfectly good reasons why a transfer will be the right outcome.

“This would particularly have been the case as transfer values soared to record levels and that is reflected in the proportion of recommendations to transfer.

“It must also be remembered that these figures only count people that went through a formal advice process.

“Many advisers operate a triage process that filters out clients for whom a transfer is very clearly not appropriate. If these clients were included in the data, the proportion of recommendations to transfer would be significantly lower.”

The average transfer value between 30 September 2017 and 2018 fell by £48,000, to £351,584, while the proportion of advice that recommended transferring also decreased, from 72 per cent to 69 per cent.

Bell added: “Over the last year data is available for we’ve seen the average transfer value decrease and the proportion of recommendations to transfer has naturally followed suit.

“This trend is likely to have continued as increased regulatory scrutiny has pushed up professional indemnity insurance premiums for advisers, causing the advice market for DB transfers to shrink.

“It wouldn’t be a surprise to see the volume of DB transfers to halve for the year to end of September 2019 when the data becomes available.

“Defined benefit pension savers will inevitably find it harder in the future to find an adviser willing to help them in this area.”

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