UK pension transfer advisers struggling to obtain PI cover

Advisers have reported massive increases in premiums and restrictions on cover, as well as more questions from insurers at the application stage and "massive delays" in receiving quotes, according to the Personal Finance Society (PFS). The trade body said that "soaring premiums and restrictions to cover" meant that an adviser could be forced into bankruptcy by a single compensation claim, meaning many were making the decision to exit the market.

PFS chief executive Keith Richards said: "Financial advisers who have never had a single complaint made against them are being frozen out of the defined benefit pension transfer market because of PI premium hikes and restrictions on cover".

The PFS is gathering evidence from its members which it intends to present to the UK government, in support of its call to reform both PI insurance and the industry levy which funds the Financial Services Compensation Scheme (FSCS).

One adviser, which paid £22,736 for PI cover in 2017, told the PFS that the best quote it could obtain for 2018 was £112,000. Another firm experienced a threefold increase in premium cost in January, combined with an increased excess for claims related to defined benefit (DB) transfers. Cover for future DB transfers was capped at £160,000, against a Financial Ombudsman Service (FOS) limit of £350,000.

Savers wishing to transfer more than £30,000 out of a DB pension scheme, including final salary schemes, must seek independent financial advice before doing so. The requirement reflects the view of the Financial Conduct Authority (FCA) that such transfers will not be suitable for most consumers, as these 'safeguarded' benefits are usually backed by employer guarantees.

Pensions expert Robert Tellwright of Pinsent Masons, the law firm behind Out-Law, said: "A decision to transfer benefits out of a final salary scheme is a huge decision for the individual concerned, and it is vitally important that they are able to get high quality financial advice about that decision".

"The FCA needs to urgently engage with independent financial advisers (IFAs) in this market, to ensure that standards of advice are improved where deficiencies have been identified. Until this is achieved, there will continue to be upwards pressure on the insurance premiums the IFAs have to pay," he said.

"As these premiums increase, many IFAs are withdrawing from this market. This means that pension scheme members are finding it more difficult to obtain the advice they need, and transfers will take longer to go through. To address this, many pension scheme trustees have appointed a preferred IFA for their scheme - but these trustees are now having difficult conversations with their preferred IFA about its falling level of PI cover, and the risks scheme members may be exposed to if the advice is found wanting," he said.

There were also longer term implications for pension schemes seeking a buyout further down the line, said Tellwright.

"Transfer options not only give members greater choice and flexibility over their retirement options, they also help final salary schemes to bridge the funding gap towards securing all scheme benefits with a life insurer," he said. "The cost of this insurance falls as more deferred members - who are relatively more expensive to insure - transfer out of the scheme."

"A lack of capacity in the IFA market to support pension schemes with these transfer exercises may well affect the pace at which those schemes can bridge the funding gap to a fully insured buyout," he said.