Article by Phil
Latest on pension transfer advice requests
Pension transfer advice requests are being unnecessarily delayed according to figures from the Money and Pensions Service.
Under Department of Work and Pensions (DWP) rules, pension transfer advice requests must be stopped and investigated if certain red flags are discovered by the pension provider. The rules are very strict and have led to over 80% of all transfers being flagged as suspicious. That has led to long delays in transferring funds. Often to the detriment of clients and their financial circumstances.
The red flags were put in place with the best intentions but are catching out the majority of transfers. For example, over 15,000 transfers were flagged for unknown reasons and a further 12,000 were flagged which were low risk transfers into overseas investments. Almost 4,000 were flagged for higher-than-normal adviser fees.
Only 1,885 were flagged because of pension transfer advice to transfer into high risk and unregulated investments. This was one of the key areas of concern, but it’s clear that pension providers are being over cautious in the face of the DWP regulation. The Pension Scams Industry Group has been petitioning the DWP to review its processes along with HMRC, but so far without success.
Lump Sum withdrawals can’t be cancelled.
Pension transfer clients have had further bad news when it comes to lump sum draw downs.
Thousands of pension holders took the decision to take their tax-free pension lump sums before the budget. Fearing that the Labour Government were going to introduce restrictions on the level of tax-free lump sums or change the tax rules. In the end there were no changes in the budget.
Most of the withdrawals were done without advice from pension specialists. But clients thought that they could reverse their decisions by cancelling their instructions in the 30 days cooling off period.
However, HMRC has issued specific guidance to say that the 30-day cooling off period does not apply to tax free lump sums and the withdrawal requests must be processed. This is a blow to thousands of pension savers. But it shows what effect wild budget speculation can have. It also shows the value of having a professional pension adviser to guide you through decisions about your future.
Pensions and pension transfer advice changes on the horizon.
The Financial Conduct Authority (FCA) is moving into the last phase of its plans to change the guidance and advice boundary to help more people access better financial information.
The final phase is a consultation which will consider plans to allow firms to provide targeted support to people considering their pension options. This would mean providing information and assistance without crossing the boundary into personalized advice. It also includes creating a more simplified pension advice service and providing clear rules on what is guidance and what is personalized advice.
The changes are intended to help bigger firms like pension providers themselves to offer help to their clients. Whilst still emphasing the benefits of independent holistic advice.
It seems to us that this is the key. People need to be given the choice and help to understand the advantages and disadvantages of holistic profession advice.
But wider access to information is vital. There are 16 million people saving into private pensions in the UK who will need help, guidance and information at some stage. But currently, only 9% are taking pension transfer advice.
But are more people taking advice than we thought?
Is 9% the real number? According to new research by Oxford Risk the 9% may be the overall figure across the country, but it doesn’t tell the whole picture. Their research indicates that:
- 28% of people have seen a financial advisor when they got near to retirement. That’s three times more than thought.
- 59% said that they review their financial plans. Even if they do it without the benefit of an advisor.
- With 14% reviewing their plans every six months and 26% every year.
So, perhaps the picture is not quite as bleak as it is sometimes made out and more people do take an interest in their finances are make sure that they know how they stand.
Let’s hope so.
