The Personal Finance Society, the professional body for independent financial advisers has said that sweeping reforms of pensions in the UK are in "great danger" of being derailed because insurance companies are withdrawing cover for financial advisers who provide advice on retirement arrangements. Many of its members, it said, are finding it difficult to secure the insurance needed to offer pension transfer advice.
This news comes as the Financial Conduct Authority (FCA), the UK regulator for the financial industry is stepping up its investigations into poor transfer advice, amid concerns about a new pension mis-selling scandal, due in part to the reforms that were brought in by Chancellor George Osborne. Pension freedoms as they became known, made it easier for people to choose what they want to do with their pension pot.
Under current regulations, people who are looking to transfer out of a defined benefit scheme that is worth more than £30,000 are required to get independent financial advice. These advisers must have insurance to protect against customer complaints about poor financial advice.
However, Keith Richards, chief executive of the Personal Finance Society, told the Financial Times that professional indemnity insurers had begun to pull back from providing cover for financial advisers involved in pension transfer advice. "The pension freedoms are in great danger of being derailed if insurers continue to overreact and withdraw cover for regulated advisers and their clients," he added.
"We have cases where an adviser was declined renewal of their [professional indemnity] cover, with the insurer explaining they were reducing their exposure to any future [defined benefit] transfer claims. The adviser then managed to secure alternative cover but at a significant hike in his premiums."
In response, the International Underwriting Associations Chris Jones said that insurance for advisers can be a difficult area. He said that is "Often thought to be more difficult than any other class of professional indemnity. There is a potential for substantial losses and there is a danger that cover can be considered as a product guarantee for failed investments recommended by the adviser."