35% of schemes have or are considering appointing an IFA

XPS Pensions Group (XPS) has today published ‘Providing members access to unbiased financial advice’, which looks at ways in which defined benefit (DB) pension schemes can better support members as they navigate the options associated with freedom and choice. This is the first in a series of follow-up reports following the recommendations in their annual Member Outcomes survey, which was published in May this year.

Trustees of DB schemes have historically focussed on the benefits provided by the scheme. DB transfers were fairly uncommon and seen as the member’s choice. The introduction of Freedom and Choice in 2015 turned this around by making more options available to members and placing more duties on trustees.

XPS highlight that 10% of their clients already have an appointed IFA and another 25% are actively considering appointing an IFA.

Simon Reddish, Senior Consultant and Head of IFA Selection Team at XPS Pensions Group said: “Freedom and choice has been a game changer for the pensions industry. We are seeing a growing number of trustees and sponsors looking to provide more support to help their members make the right decisions for their retirement. The increased level of knowledge and access to professional advice means that trustees and sponsors are in a much better position than their scheme members to select an IFA, and I think doing this can meaningfully improve member outcomes and protect schemes.”

By doing nothing, trustees and sponsors may be leaving their members exposed to the risk of receiving poor advice and making the wrong decision or perhaps even falling victim to a scam. On top of this, trustees and sponsors have a legal duty to ensure that members are adequately supported.

In light of this, XPS recommend trustees and sponsors should help their members to find an IFA, which can significantly reduce the risk of poor member outcomes. To ensure members receive the most appropriate advice for their financial circumstances DB schemes should be looking for advisers who:

  • Are truly independent – advice is not tied solely to the adviser’s own receiving arrangements
  • Have no commission or other incentives paid to the IFA for promoting specific products
  • Have no contingent charging structures
  • Provide good options for members – there should be the option of a low cost, simple receiving arrangement that is not high in investment or advice fees
  • Provide the option for ongoing advice – proportionate to the members needs
  • Can engage and communicate well with the scheme’s members
  • Have the Pension Transfer Specialist accreditation

Helen Ross, Head of Member Options at XPS Pensions Group commented: “We've found our annual member outcomes research has been very powerful in highlighting the risks facing members and what could be done to mitigate these. Often this hasn't been thought about by trustees or sponsors before. This is our first follow-up piece to the Member Outcomes survey published in May, focusing on IFA selection as being one of the key actions trustees and sponsors should consider.”

Read our full report here