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Advisers tell how they are dealing with DB pension transfers business

Fiona Bond talks to advisers about how they are dealing with the influx of DB pensions transfers business.

The number of clients seeking to transfer out of their defined benefit pension schemes has been increasing almost exponentially over the past two yaers as the flexibility and benefits offered by the pension freedoms coupled with high transfer values have piqued interest amongst consumers.

Currently, the scenario of low interest rates and increased life expectancy has led pension schemes to offer exceptional transfer values to their clients, “effectively life-changing amounts” as one adviser puts it.

In May, the Pensions Regulator revealed that 67,700 people transferred out of their DB schemes between 1 April 2016 and 31 March 2017, but estimated that the true figure could be as high as 80,000. Many believe the appetite for ‘cashing in’ will continue.

Unsurprisingly, the pace of demand has placed pressure upon advisers, and the complex and potentially risky nature of such transfers has placed them firmly under regulatory scrutiny.


In June, the FCA published CP17/16: Advising on pension Transfers, including new proposals on transfer advice, key to which was assessing suitability when giving a personal recommendation to ensure that a transfer is right for a client’s particular circumstances.  It proposed altering its starting assumption that transfers are unsuitable, to the more tame position that “retaining safeguarded benefits will likely be in their best interests.” It is a change in stance that has been welcomed by advisers.

As Neil Bailey, director, Fortitude Financial Planning, says: “The guidance requirements around pension transfers were outdated and more appropriate for pensions 20 years ago. We are pleased to see this change which places the emphasis on the client’s individual requirements and situation.”

Charles Riches, director, Capital Asset Management, agrees that the approach taken by firms towards pension transfers needs to address individual circumstances and suitability.

He says: “Around 80-90 per cent of the key drivers we look at lie outside of critical yields. We are financial planners, so ultimately our focus is upon the client’s objectives – what do they want to do with the money? It’s not all about the figures, it’s about ensuring that a transfer would be truly beneficial to their circumstances.”

Clients seeking to transfer are invited to bring their spouse to the meeting, Riches says, as pension transfers must be looked at in the wider context of a how they will impact a client’s family.

Sheriar Bradbury, managing director, Bradbury Hamilton, says the open change of regulatory stance “from critical yield being king to a more holistic approach” has allowed his firm to advise clients more effectively.

He says: “It has meant that we are now able to advise clients on a more regular basis to transfer away from their final salary pension. We are finding that we are coming across more and more clients where the transfer values being offered are so significant they are making transfers life changing for many clients.”

Analysis and advice process

But while the number of clients seeking to explore their options post pension freedoms increases, the process around pension transfers remains complex and time-consuming.

Simon Torry, managing director, SRC Wealth Management, says: “The advice process has to be very thorough and generally speaking, consumers know this is a large and complex piece of work which requires time. Often, people come to us having done their research beforehand, but we make sure we explain at the outset exactly what the process will involve.”

Torry says firms advising on pension transfers must have a comprehensive and robust advice process in place and keep clients informed of the process step-by-step.

In an effort to help consumers understand the implications of a pension transfer, the FCA has proposed replacing the Transfer Value Analysis with a more appropriate analysis that includes a cashflow plan and greater emphasis on the value of the benefits clients will be giving up.

Bailey says Fortitude Financial Planning has constructed is own spreadsheet of analysis, providing a framework of different scenarios for clients, in addition to using cashflow modelling.

He says exploring a client’s risk profile through various tools is all part of offering a comprehensive service. Following the introduction of the pension freedoms two years ago, the firm took the view that all clients’ final salary schemes should be reviewed as par for the course.

He explains: “We didn’t carry out a review with a mind to change them, we did it so we could be absolutely clear on the implications of the pension freedoms for our clients.  We felt this was something that had to be discussed, and I think it would be a very dangerous move for advisers not to look their clients’ schemes.”

Bailey says once the idea of a pension transfer has arisen, a client meeting looking specifically at the pros and cons of a transfer takes place. Following the meeting, a report is sent to the client paraphrasing what was discussed and the client is usually given around a week to decide whether they want to proceed.

He says: “In terms of the process, we split it into advice and implementation. We gather a lot of the information required during the advice process and clients are charged a fee for this comprehensive analysis. However, we will not take an insistent client instruction if they want to go ahead and we do not feel it would be in their best interests. We will only ever proceed if we feel it is right for the client.”

Pension scheme delays

But while adviser and client work through the transfer advice process, there is the issue of the three-month cash equivalent transfer deadline which must be met. For Bradbury, the scheme trustee’s generous transfer values and speed at which administration is carried out do not marry up.

“While the level of transfer values show that scheme trustees are keen to lose some of their liabilities, this desire is not reflected in their administration,” says Bradbury. “They will often just send back standard template responses to information requests. When this missing information is requested it will go to the back of the queue which is frustrating with their four-week turnaround times. This merry go-round can last several months before we eventually receive all the information that was originally requested.”

Riches echoes this sentiment, noting that typically scheme administrators will only respond to requests in writing and as such, eat into the three month window.

He says: “The time taken varies from scheme to scheme; some are excellent, others are much slower but generally speaking it does eat into the three month window you are given. But, as far as I can see, it’s always been that way and I’m doubtful it will change.”

For Torry, however, the time taken to work through the transfer is necessary for both client and adviser, and should be viewed as a positive.

He explains: “Deciding to transfer out is a large piece of advice and one that should not be undertaken lightly. Yes, the process can be a little long-winded, but I believe that’s needed as it provides breathing space to ensure decisions being made are well thought through.”

Part II of this article – ‘The ticking time bomb’ will be published next week.

Fiona Bond is a freelance business and financial services writer

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