Question to the HM Treasury:

To ask the Chancellor of the Exchequer, what assessment he has made of the potential merits to holders of defined benefit schemes of being required to obtain financial advice before transferring their pension.

The Government is committed to ensuring that consumers can access high-quality, affordable and suitable financial advice, as well as free-to-access financial guidance, when they need it. HM Treasury works closely with the Financial Conduct Authority (FCA), who are the independent regulator of the financial advice market.

The Government introduced a requirement for members of pension schemes with safeguarded benefits, such as defined-benefit (DB) schemes or those with a guaranteed annuity rate, to take independent financial advice before accessing their pension pot flexibly, where the total value of the member’s benefits exceeds £30,000.

This is because these schemes offer a high level of security and, in some cases, valuable guarantees that should not be relinquished without fully understanding the risks of doing so. Therefore, it is important that consumers receive suitable advice to ensure the implications of a pension transfer are clear to them before proceeding with a decision to transfer.

Whilst we recognise concerns about the cost of obtaining this advice, the level and structure of advisory fees is a commercial decision for advisersand the FCA do not have a remit from Parliament to regulate the way in which financial advice firms price their services. However, the FCA expects firms to consider whether the advice they give is likely to be of value to the customer, once the total charges they are likely to pay are taken into account.

The FCA and HM Treasury are working closely to monitor the situation around DB pension transfer advice. At the start of February 2022, there were 1160 advice firms able to give pension transfer advice.

Since 2015, the FCA have identified numerous instances of unsuitable advice being given, putting at risk pensioners’ financial security. In response, the FCA have intervened extensively to improve DB transfer advice, investigating the firms involved and taking enforcement action where necessary. The FCA recognise that these actions have led to an increase in the cost of professional indemnity insurance for advisers who give DB transfer advice. As a result, some firms are choosing not to offer pension transfer advice and others are charging more, due to the cost of the insurance premiums.

Nevertheless, the FCA and the Government believe that it is vital consumers receive suitable advice in this market, considering the long-term financial implications of a pension transfer, and continue to monitor the situation closely.