Defined Benefit Transfer Advice Suspended

Published / Last Updated on 15/05/2019

The whole world of DB transfer work has changed over the last year in the UK and 2019 is now a key year. 

There have been many complaints for poor advice (which we have not been involved in) resulting in debates in Parliament, the Treasury and the FCA issuing new advice rules and guidance.  Indeed, in April 2019, MPs were calling for criminal prosecution for those rogue advisers that took so many British Steel workers out of their defined benefits scheme.

Despite our firm never having received a DB advice complaint in 19 years trading, even our professional indemnity (PI) insurance premiuns QUADRUPLED in August 2018.  Meaning:

  1. Our fees to clients were increased
  2. Our scrutiny and due diligence for these type of works were increased more so than was and is required by the regulator so we still are and were very ‘selective’ about which client works we took on
  3. PI policy excesses were also QUADRUPLED for DB works only – meaning an even greater liability for us than ever before
  4. We were less inclined to take on this type of work unless there was an overriding reason to do so rather than just higher than average transfer values. 

Paying insurance at rates of over £20k pa on top of excesses £20k + excesses for each and every claim (if we ever have one) and all the other regulatory, ombudsman and compensation scheme costs and levies on top of normal employee/office and operating costs (for a two man practice) have made this work extremely high risk for any adviser.

Finally in April 2019, and another 'nail in the coffin', on the 1st April 2019 the Financial Ombudsman Service (FOS) compensation limit was increased from £150k to £350k per claim with just 11 days’ notice:  Result: PI insurers are ‘running scared’ and not even sure they will match the FOS limit or indeed continue to offer insurance to the IFA sector.

Many PI insurers have already excluded DB schemes from PI cover and others are starting to offer ‘shared liability’ cover e.g. if an IFA was negligent and you made a £350k compensation claim, the IFA would be liable for say 50% i.e. £175k with no insurance cover and the other 50% covered by the PI insurer.  Needless to say, many IFAs have pulled out completely or indeed being forced to close.

Our Position:  We have temporarily suspended quoting for or advising on DB transfers from 1st April 2019.

As a new potential option to re-open this much needed sector for advice, we have already made an application to our professional body (the Chartered Insurance Institute) to register for the newly created “Gold Standard” (May 2019) for pension transfer advice and in light of this, our PI insurers may then consider offering full FOS limit cover for defined benefit transfers.  As such, this may take a month or two and for these reasons, at this moment, we have suspended quoting for this type of work (as have virtually all independent financial advisers in the UK) until we know what our insurer’s stance is – to protect both you, our potential client and ourselves.

We will of course let you know if/when our PI insurers position changes and we are able to accept this type of work again.


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