Unprecedented numbers of people are seeking to transfer away from their existing defined benefit (DB) pension schemes to take advantage of the April 2015 defined contribution (DC) pension flexibilities. However there is a general sense that the pension system is struggling to cope with the increased pension demand.
April 2015 saw the introduction of new rules which have revolutionised the way in which members of DC schemes can access their retirement pots using flexi access drawdown and the taking of tax free lump sums in isolation.
The new DC regime allows members to tailor their benefits to suit their own requirements.
Yet members of DB pension schemes would need to transfer to DC arrangements to access the same flexible pension benefit options. However the transfer process is not easy.
Currently the legislation requires members to request a transfer value, the trustees of the DB scheme then provide a statement of entitlement. This should include details of the pension at the current time with an estimate of the expected pension at the scheme retirement date together with a cash equivalent transfer value. This can (and currently with the demand) is taking anything up to 4 months.
There is then usually a guaranteed period for the transfer value and it is important that, if you are interested in reviewing your DB scheme, you set the ball rolling as soon as you can to ensure that that, should the transfer proceed it can be done within the relevant statutory period. If the deadline, for what ever reason, cannot be met, additional costs may be levied by the scheme trustees and you will lose the guaranteed cash equivalent transfer value. In some cases the value may later increase but it will always depend on the factors used by the trustees.
Errors or insufficient or late information at just one step of the process can lead to significant delays. In light of various pension scams, DB pension scheme trustees have to be ever more vigilant that the transfer is being made to a genuine registered scheme. For example a transfer should, in all cases, go directly to the new provider.
Additional complexity is generated by the requirement for members whose DB pension saving is valued at more than £30,000 to obtain independent financial advice. The regulator, The Financial Conduct Authority, is consulting on tightening the independent advice requirements and released a paper on the 21st June, though we do not expect any changes on the current requirements before the end of 2017.
The regulator’s outcome is intent in ensuring consumers receive good quality advice that enables them to make informed decisions on pension transfers. The FCA states that it wishes to make it clearer that it is essential for an adviser to demonstrate that an individual will benefit from giving up a valuable pension.
We welcome this move for the industry and we have used this principle now for the last couple of years with regards our fee structure. We do not charge on a percentage basis the size of the transfer value. The work required and the meetings we have to discuss the options with clients in making the right decision is exactly the same. We split our fee into 2 parts:
1. The report and the options of transfer and leaving the benefits within the scheme, which is a fixed fee and;
2. The implementation.
We have had enquires from potential new clients who state that some advisers just charge a one off charge and nothing if the transfer does not proceed. This is a concern to the regulator and we believe these concerns are justified. Whilst it maybe considered that the transfer value is too good an opportunity to miss, it is important that a full and balanced view is given. Clearly if a fee is only going to be paid on transfer it is not unconceivable that the advice is not going to be balanced.
Prismatic Wealth are not interested in just signing off the paperwork just in order to transfer DB benefits. We analyse the options and work towards a holistic view which includes cash flow modelling as standard to achieve a better client outcome. We offer an ongoing service which, whilst not mandatory, is a bit like not servicing your car and only going to the garage when there is something wrong.
All our reports are produced in house - we do not use provider’s reports as we again feel there is already a bias to use that provider. P ensions is our area of speciality and we have several people within the business that have the necessary professional qualifications and experience. This is just one aspect of the process and the information you can obtain from the web site. Any one looking to transfer must be comfortable with the adviser especially if you want an ongoing relationship. Our first meeting is an opportunity to ask questions and this will be 2 way as we need to know your full financial circumstances and it is at that point decisions need to be made that both parties are happy to proceed and the paperwork can commence.
We pride that we can deliver the level of service you expect and you will be fully kept up to date throughout the process with access to your adviser and the team.
A lot of our recent enquiries have come from existing client recommendations however every new client gets the same level of service so if you would like your options explained to you please give us a call on 01642 661600.