Retirees looking to access additional income from their defined benefit (DB) scheme during the Covid-19 crisis will be victims of a “capacity crunch” as suitable financial advisers flee the market, according to Barnett Waddingham.
The professional services consultancy found the direct market impacts of coronavirus will add to the pressures of increased regulation and the rising costs of professional indemnity insurance that have already left many advisers reconsidering the breadth of services they offer.
Partner Simon Taylor said: “We have already heard anecdotal evidence of an increased interest in transfers from scheme members – the decline in the number of advisers is likely going to lead to a capacity crunch.
“Some older employees who have the ability to transfer will be looking to their DB deferred pensions as a way of accessing additional income and in order to do this, they need to take advice from a regulated adviser, but the number of advisers who can give this advice has plummeted, and will continue to do so.”
Taylor said he also expected more schemes to impose statutory reductions to transfer values to reflect worsening funding positions and to protect overall finances.
He added that a short-term suspension of transfer value for up to three months as per The Pension Regulator’s guidance “may give schemes some breathing room” to decide whether to impose a statutory reduction or not.
“But beyond this, scheme sponsors and trustees need to be thinking seriously about putting a support framework in place for members wanting to investigate transferring, ensuring they’re offered independent and trusted advice which supports their short and long-term financial needs,” he said.
“As we go through, and come out of, the current climate this is likely to be more valuable than ever to members.”
Figures from Barnett Waddingham show 95% of schemes saw an increase in transfer volumes between 2018 and 2019 with 5.9 million non-pensioner members currently in DB schemes.
This follows TPR estimates of approximately 400,000 transfers from DB schemes between April 2016 and 2019 with around £47bn transferred out between April 2017 and 2019.
Without support, Barnett Waddingham said it would become increasingly difficult for members “to understand all their DB pension options” meaning both trustees and sponsors were “uniquely positioned to put in place a framework to support members”.