New regulatory requirements for defined benefit (DB) transfers from the Financial Conduct Authority (FCA) could lead to a lack of available advice, Aegon has warned.

The regulations, which come into effect from 1 October, include requiring independent financial advisers who are recommending a transfer out of a DB scheme to benchmark the proposed destination for the funds against a low-cost workplace pension.

The new rules, which were first announced in May, are also set to ban contingent charging.

Aegon pointed out that figures from the FCA’s Retirement Income Market Data showed that the number of DB transfers has already seen a year-on-year drop of 28 per cent in 2019/20.

However, the provider noted that this data predates the Covid-19 crisis, which might have made people keener to explore their wider retirement options as many have been forced into redundancy, early retirement or financial difficulties.

Aegon pension director, Steven Cameron, said: “While well intentioned, the concern is that additional requirements may lead to more advisers stopping advising on such transfers.

“We’ve already seen a steady decline in the number of advisers prepared to offer DB transfer advice as a result of the perfect storm of heightened regulatory and political scrutiny and challenges in obtaining affordable professional indemnity insurance cover.”

Cameron points out that “not all workplace schemes will meet the needs of those transferring large sums close to retirement”, adding that these schemes may not match savers’ objectives but could be recommended anyway by advisers who “have concerns that recommending alternatives will be challenged later by the FCA”.

Cameron concluded: “A new form of ‘abridged advice’ also goes live on 1 October. This is designed to allow advisers to more quickly identify customers for whom transferring is unlikely to be suitable, at lower cost. We hope advisers will consider adding this to their advice propositions as a means of identifying the minority of clients who would benefit from full DB transfer advice.

“We hope the FCA keeps a close eye on the ongoing supply of DB transfer advice to ensure this stays sufficient to provide an effective market. It’s vital that individuals have the opportunity to explore transferring which while for many will be unsuitable, for others could offer a life-changing opportunity.”

Share Story: