Articles - DB Transfers from the members perspective

Every deferred member of a defined benefit pension scheme has the right to request a transfer value from the scheme. There are around 5 million deferred members in the UK and around 100,000 to 150,000 request a transfer value each year with around 50,000 transferring. Transfer values have for some time looked very attractive to members. They appear very high compared to the annual income, due to low interest rates. In addition, post pension freedoms, transfers offer significantly more flexibility than the fixed benefits payable from the scheme.

 By Kevin Hollister Actuary and Founder of Guiide DB

 So what is it generally like from the member’s point of view when they ask for a transfer value?

 Receiving a transfer value
 I may wait a little while for my transfer value from my scheme administrator. Then, I see what appears to be a life changing amount of money. That value is about all I concentrate on and the idea of getting hold of it.

 I am also told that in order to access this transfer value I must take advice. It’s the law and there is no way around it. Not only do I need advice, but I need advice from a specialist type of adviser with transfer permissions.

 I don’t know it yet, but the number of specialist advisers in the market has rapidly reduced due to a variety of reasons and it’s getting hard to find someone suitable.

 My transfer pack contains a link to where I can try and find an adviser myself and also a link to the MoneyHelper service, where I can receive some guidance. Finally it contains a letter educating me around scams.

 So in summary I am left with a life changing amount of money in my hand, to try and find specialist advice from an ever shrinking market myself with no further support.

 Finding this type of advice is far from easy and in addition:
 I have no idea if it is even worth exploring a transfer, given the FCA believe that it will not be in the best interests of the majority of members.
 I have no idea of a reasonable amount to pay for the advice.
 I have no idea of what the adviser should be doing to consider if a transfer is in my best interests.

 This is the reality for around 80% of schemes who do not appoint an adviser or panel of advisers directly to help their members.

 Risk of scams and poor advice
 The industry has been dealing with scams and the fallout from bad advice (the latest being the British Steel Pension Scheme) for many years.

 The process described above for the 80% of schemes not appointing their own advisers just leads to the continuation of this problem.

 The risk of a member having to find their own specialist advice, falling victim to a scam or receiving poor, expensive or biased advice has been clear for some time. Yet the pace at which this is being addressed continues to be slow.

 New scam powers
 One reason for the slow pace of change is that many trustees believe there is a greater risk of signposting specific advisers, rather than requiring members to find their own advice. It is hard to see how leaving members to find their own advice rather than signposting them to vetted advisers could ever be in their best interest.

 Recently trustees have also been given the legal power to block transfers they believe are a scam. Therefore, there would now appear a greater risk to trustees if a scam transfer is made and the trustee did not use the powers they now have available to block this. Given this, it is likely most trustees will undertake scam checks (at a cost) before allowing transfers.

 Transfers can proceed with no further checks to authorised master trusts, authorised collective defined contribution schemes, and public service schemes. They can also maintain a 'clean list' of personal pension schemes they have reason to believe are not being used for scams.

 However, this seems to be tackling the problem the wrong way round. If members are signposted to suitable advisers in the first place, then any transfers following this advice will be to a suitable receiving vehicle and the receiving vehicles, including personal pension schemes used by the adviser, can be checked and approved at outset and added to their cleanlist.

 Alternative solution
 There are upfront costs involved in providing access to a suitable adviser and although we fully support this route as the optimal choice for trustees, the reality is that some schemes will just not have the budget to provide this.
 Instead of the current default signposting for these schemes, we believe that a preferred signpost would be to a journey which:
 Educates members on the advice process before they start it.
 Helps members decide if they wish to pursue advice, given the costs involved, their specific situation and the FCA’s views on suitability.
 Provides access only to experienced, vetted, independently monitored advisers
 Provides alternative advice and guidance routes for those who do not wish to consider a transfer further.
 Highlights an FCA regulated provider willing to accept transfers for those with under £30K transfers, where advice is not needed.
 Can be used to agree an upfront clean list to avoid the need for further scam checks, based on agreement of all of the adviser panel’s proposed receiving vehicles.

 This is why we created Guiide DB, a free to use alternative that we hope can become the default signpost for those schemes that do not appoint their own adviser.

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