To DB or not to DB?

The DB pension transfer market is no stranger to change. Since the pension freedom reforms in 2015 it has faced intense scrutiny from the public, government, and regulators alike. Last year’s ban on contingent charging combined with the tightening of the PI insurance market, have led to huge numbers of firms taking the decision to remove their DB permissions. So, what is the landscape of DB advice in the UK? What does it mean for advisers and their clients? And what does the future hold?

Related topics:  Special Features
Will King | Pension Works
27th August 2021
Will King Pension Works 2
"Often, by advising higher volumes of cases, economies of scale enable these firm to invest in the technology, staff and insurance that is required to operate in this sector."

Every time their PI renewal date comes up, each firm must ask: ‘To DB or not to DB? That is the question.’ Put simply, is it worth the time, expense and risk involved in advising these cases? Often it simply doesn’t stack up, and in many cases the decision is effectively made for them by insurers increasing premiums by three, four, five times or more.

At the same time, we have seen CETV requests reaching pre-pandemic levels, and the Transfer Value Index achieving near-record highs. There is no question that the demand for trusted Defined Benefit advice is there, but options are becoming more limited week by week.

The outsourcing of DB advice to specialist firms, or bureaus, has increasingly become the norm. Often, by advising higher volumes of cases, economies of scale enable these firm to invest in the technology, staff and insurance that is required to operate in this sector. In general, these bureaus will advise on the suitability of a DB transfer and on the investment of funds under their own liability, manage the transfer itself and then return the client to the introducing adviser for ongoing management.

Sounds too good to be true? Well, there are a number of factors to consider. Firstly, even though you may have informed your insurer that you do not intend to advise DB cases, you may still need to notify them that you wish to refer cases to a DB bureau. They may have queries about the process, the liability, and about the firm itself, which brings me to my next point:

Carry out due diligence! It is imperative that you are comfortable that your clients will receive appropriate service levels and quality of advice. Check out Trustpilot reviews, the FCA register and their accreditations, but most importantly, understand the firm’s process in depth; How do they ensure that introducers are in no way involved in the process? How are clients kept up to date on progress? Will they provide you with a dedicated point of contact? What are their compliance procedures? Have they experienced capacity issues?

Defined Benefit pension advice is not only extremely complex, but highly scrutinised, costly, and time sensitive, but the demand for DB transfer advice won’t diminish in the foreseeable future. In fact I expect to see a notable increase over the coming months. Despite this we can’t expect any short-term change in the availability of PI cover so the market will continue to consolidate, with the outsourcing of DB advice becoming increasingly prevalent.

There are important factors to consider when deciding to outsource, but by working with the right DB specialist, advisers can still offer a holistic service, avoid the headaches so often associated with DB advice, and as much as possible, ‘future proof’ themselves from the continuing changes within the DB advice market.

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