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Using triage to tackle DB pension transfer volumes

Standard Life’s advisory arm has introduced a system of triage to help tackle the volume of DB pension transfer requests it is receiving

With demand for DB to DC transfers having escalated over the past two years – FCA’s figures for its 2016 Adviser Survey show that adviser firms had experienced a 123% increase in demand from existing clients and a 246% increase in approaches from potential new clients looking to move their pensions – firms need a way to deal with the volumes as well as ensure that any work undertaken is profitable and gives the client the right outcome.

Speaking at the annual CISI Paraplanner conference, Bob Gordon, pensions consultancy manager, Standard Life, said the firm’s advisory arm had implemented a system of triage, to quickly identify which cases were better off staying in the pension thereby ensuring advisers only took through to analysis and advice the cases that were likely to benefit from it.

Gordon said Standard Life estimates that the wealthiest 10% of pension holders control over a third of the asset value of the pensions market. “That’s around 600,000 people with an asset share of over £300bn… who may be better served by the flexibility of DC than they would by a large guaranteed but inflexible DB pension.”

In addition, he said, demographic figures indicate that around 300,000 people a year are coming up to retirement over the next 20 years. “If the wealthiest 10% were to transfer, that’s 30k transfers a year with an average transfer above £0.5m.” Hence, this is the market advisers should be focussed on, he suggested.

However, the issue for many firms was identifying which cases to take forward, so both they and the client achieved the right outcome. To this end Standard Life has implemented the triage system, offering a free consultation to see if they and the client can do business. Typically, the prospective client is asked to complete a brief fact find and the adviser then has a 15 to 20 minute conversation over the phone, running through a standard checklist to manage the conversation and establish if the case should be progressed further. The conversation is recorded as part of the process.

“For most people, as you run through the checklist, you can see very quickly that staying in their DB pension is the right thing to do. For others, you can equally as quickly see that transfer would be right. For those in the grey area you can draw your own line.

Gordon said Standard Life had distilled what is “a very complicated advice equation” down to four key considerations:

1. Client needs. Does the client need a guaranteed income or would they be better suited by flexibility?

2. Sustainability. This is a key focus for the FCA. A transfer takes someone from safe position to one where income relies on investment results and tax planning. Does the client fully understand the responsibility and can they manage it?

3. Value. With big differences between TVA sums, even between similar pensions and schemes, is what’s on offer to the client good value for them?

4. Understanding. If the client doesn’t understand the whole picture it is very risky for the adviser firm to take them forward. “A lot of people can see the big number but don’t understand the implications of taking that offer,” Gordon warned.

Triage is about identifying the masses who have heard from a friend or colleague that transferring is a good thing to do and giving them the facts, Gordon said. “The process acts as a reality check. It is designed to get as many people out of the system as possible.”

DB pension transfer is lengthy and costly process and for people to go through the process and be recommended to stay put is “a bad outcome for everyone”, he added.

Using the triage process, Gordon says the firm tends to take people through to transfer advice only if they have a sustainable income already; their DB income is way more than they need; they have considerable assets of which the DB plan is just a small part; or people who are in ill health with reduced life expectancy.

“We very rarely come out of the triage conversation in dispute with a potential client. Most people who come in to us for advice go away happy, knowing they have had a useful conversation and understand better why it is not for them. There is normally an agreement on the way forward,” he said.

Operating the triage system, 9 out of 10 people the firm takes through the DB advice process it will advise to transfer, Gordon said. “In isolation that looks horrific to a regulator or a PI insurer but it is the tips of the iceberg because 90 out of 100 we are turning down. So it is 9 out of 100 that transfer.” As well as recording each of the conversations and logging it against the checklist, the firm maintains a central log of when everyone came into the pipeline and when they fell out of it.

“We have run this past the FCA and they like it,” Gordon added. “And we are working hard with PI insurers to achieve better terms.”

Partial transfers

An option for those in the ‘grey area’ or who do not want to place all their assets into drawdown is a partial transfer.

This enables the client to retain a guaranteed income for known bills and expenses, etc, and transfer the rest to DC for the greater flexibility and legacy reasons. “It’s a very comfortable advice solution.” Gordon suggested, as it can provide a win-win-win solution for the client, pension scheme, and adviser firm.

From the employers and trustees perspective, their biggest issues is the pension scheme’s deficit and the cheapest way to get rid of the liability is for people transfer out, fully or partially. As Gordon pointed out, “the transfer values are never as high as the book value sitting on the employer’s balance sheet”. Also, the client has a sustainable, ‘guaranteed’ income and access to pension freedoms benefits, and the adviser produces a suitable outcome for the client and profitable business for the firm.

While a partial transfer is not on offer from every pension scheme, Gordon suggested that where a partial transfer would suit a client’s needs but trustees say they don’t offer partial transfers, advisers should probe further and ask why not. “Ask the question and make the case. You may be surprised,” he said.

 

 

 

 

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