Rising financial advice insurance costs may lock savers out of final salary pension pots
Workers can only access final salary pension pot cash worth more than £30,000 once they turn 55
Savers face being locked out of their pension pots due to the rising costs of financial advice insurance.
Workers can only access final salary pension pot cash worth more than £30,000 once they turn 55 and have spoken to a financial adviser about the risks involved.
But the rising cost of professional indemnity (PI) insurance means many firms can no longer afford to offer pension transfer advice.
The Personal Finance Society (PFS) says one financial advice firm had told how its premiums rose from £3,700 in 2009 to £45,000 in 2019. Another adviser says premiums jumped from £22,736 in 2017 to £112,000 in 2018.
The sums involved mean a single compensation claim could push a firm into bankruptcy.
It is thought the soaring costs have been prompted by fears of a mis-selling scandal around defined benefit schemes.
Last year, the Financial Conduct Authority warned that two in three savers were being told to transfer their pension pots out of the defined benefit schemes against their best interests.
The watchdog says doing so could hack an average of £77,000 off a £350,000 pot.
It has since outlined plans to ban the fees pocketed by advisers for transferring pension pots out of defined benefit schemes.
But the PFS says the backlash has now gone too far.
Chief executive Keith Richards says, '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’.
'Problems with PI cover are causing financial advisers to exit the defined benefit pension transfer market and are limiting the public's ability to access the financial advice they need to exercise pension freedoms.'
Defined benefit pensions pay out a secure income for life, which increases each year. Most defined benefit schemes have a normal retirement age of 65, but some schemes allow savers to access their pension from the age of 55.
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