Over a third of DB pension schemes using or considering IFA

Over a third of DB pension schemes have either appointed an IFA or are considering appointing one, according to XPS Pensions Group.

The consultancy has discovered that 10 per cent of their clients have already secured the services of an IFA, and another 25 per cent are looking at appointing an IFA to advise members over their freedom and choice options.

XPS welcomed the findings and called on more schemes to follow suit. It says that by doing nothing, trustees and sponsors may be leaving their members exposed to the risk of receiving poor advice and making the wrong decision, or perhaps even falling victim to a scam.

In a report called Providing members access to unbiased financial advice, the company has said that appointing an IFA for scheme members would result in lower costs for members due to economies of scale; enable advisors to be fully informed about a scheme; and ensure that an IFA is impartial as fees would not be dependent on a particular outcome.

XPS senior consultant and head of the IFA selection team, Simon Reddish, said: “Freedom and choice has been a game changer for the pensions industry. We are seeing a growing number of trustees and sponsors looking to provide more support to help their members make the right decisions for their retirement.

“The increased level of knowledge and access to professional advice means that trustees and sponsors are in a much better position than their scheme members to select an IFA, and doing this can meaningfully improve member outcomes and protect schemes.”

The consultancy has also said that trustees and sponsors should not be afraid to be seen to “endorse” an IFA by choosing one.

Although there could be reputational risk for trustees and sponsors should members receive poor advice or a poor outcome, XPS believes that risks can be mitigated a scheme seeks assistance from professional advisors to carry out checks on the IFA it is appointing.

In addition, any IFA considered for the role should be certified as competent for DB transfers and in the unlikely event that an IFA firm became subject to claims or a ban, then this would be resolved with the Financial Ombudsman, with any compensation covered by the IFA’s insurance arrangements.

To ensure members receive the most appropriate advice, XPS says that DB schemes should be looking for advisers who are truly independent; have no commission structures in place; provide the option for ongoing advice; and can engage and communicate well with the scheme’s members.

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