Four out of 10 UK financial advisers offering transfer advice on defined benefit pensions have raised their fees since 2018, according to a wide-ranging poll.
Since 2015, savers wanting to transfer a defined benefit, or final salary-style, pension to a more flexible personal pension arrangement must first obtain advice from a regulated adviser if their fund is worth £30,000 or more.
But in recent years it has become increasingly difficult for savers to meet this requirement after more than a third of advisers — around 1,000 — stopped offering transfer advice due to soaring professional liability insurance premiums.
An exclusive survey commissioned by the Financial Times confirmed that this capacity crunch has coincided with many advisers who still offer transfer advice raising fees.
Exclusive polling of 1,049 advisers, conducted in February by the Personal Finance Society, found that only 65 per cent, or 681, offered advice on final salary options.
Of the 368 advisers polled that did not offer advice, 294, or 80 per cent, had previously done so.
Of the 681 still offering advice, four in 10, or 384, said their fees had increased over the past two years, as the bills they received from insurers, to cover the cost of potential compensation claims from customers, had also skyrocketed.
Keith Richards, chief executive of the Personal Finance Society, which polled its members for the FT, said: “The hardening of the professional indemnity insurance market is impacting the availability of advice to consumers, who must take regulated advice to be able to exercise their rights under pension freedoms for defined benefits pension transfers.”
The PFS survey did not provide further detail on the scale of the increases applied by individual advisers around the country.
But the PFS said many advisers were reducing costs elsewhere, such as on travel during the pandemic, or through the use of technology, to avoid passing on the full brunt of professional indemnity (PI) premiums increases to clients. The increases in PI premiums, which have resulted in some advisers leaving the market, have been driven by insurers’ concerns about large compensation claims from customers for bad transfer advice.
The PFS has previously reported cases of advisers seeing their PI premiums leap from £22,000 in 2017 to the best quote they could obtain in 2018 being £112,000.
“The reduction in expert financial independent advice is a serious concern,” said Baroness Altmann, a former pensions minister.
“I would like to see the £500 pensions advice allowance (currently only available to defined contribution savers) being increased and being facilitated by DB schemes, not just DC schemes, so that fees are paid to all advisers for the transfer advice, regardless of the outcome of the advice.”