Defined Benefit Pension Scheme Transfers

Perhaps you’ve already transferred out of a Defined Benefit (salary-related) pension scheme, or you’re thinking about it. Making this move requires professional advice but a recent Financial Conduct Authority (FCA) report¹ found that less than half of the transfer cases they reviewed gave ‘suitable advice’.

In 47% of the cases reviewed suitable advice was given, in comparison to broader pensions and investment advice cases reviewed, this is poor. 90% of pension cases reviewed were found to have given suitable advice and investment cases were suitable 91% of the time.

A bit of background first…

The FCA started to monitor this type of pension transfer back in April 2015 with the arrival of pensions freedoms. The headlines of the day were all about pensioners cashing in their pots to buy Lamborghinis. Unsurprisingly there hasn’t been a surge in sales.

There was however, a dramatic increase in the number of people transferring out of their Defined Benefit schemes (the best known being Final Salary schemes), into Defined Contribution pensions in order to access the new freedoms.

Between April 2015 and June 2017² over £50bn was transferred from Defined Benefit schemes.

What have the FCA been doing?

Well, they’ve been busy with various consultation papers and policy statements, which our internal Pension Transfer Specialists have been over the moon about – we kid you not!

The key points make for good reading from our perspective, as they highlight the importance of really understanding clients’ objectives and utilising planning tools such as cashflow forecasting models.

So, why the low rate of suitable advice?

The low rates could be down to:

• Outsourced advice, as you need to have the specialist qualifications to advise on final salary transfers
• Looking at the pension in isolation

In our experience, a Defined Benefit transfer is unlikely to ever be right if it’s just a numbers-based exercise. If you’re trying to simply replicate what your existing pension does, you’ll probably be in for a shock. After all, you only have to look at how many schemes are in deficit or offer incentives to transfer out, to know it’s not an easy game.

What should you be doing?

Instead, you should start by looking at your bigger picture. What do you want to achieve? What do you value? And how do you see your goals and dreams coming to fruition? At Cooper Parry Wealth we don’t just look at your pension in isolation, we look at all areas of your wealth to create a financial plan that is tailored entirely to you.

It’s important that you understand the long-term consequences when it comes to your finances and we bring that to life with cashflow modelling which can show you everything from the effect of an early retirement on your finances to opportunities to draw more down on your pension.

Before you jump in to making a Defined Benefit transfer make sure it is the right thing for you and that you have considered all the options.

Afterall, once it’s done there’s no going back!

Get in touch to chat about how we can help.

¹ FCA ‘Our work on Defined Benefit Pension Transfer’ October 2017
² Citywire ‘DB transfers estimated at £50 billion since freedoms’ June 2017

The value of investments and the income from them can go down as well as up, and you may get back less than you originally invested. Past performance is not a guide to the future. The investments described are not suitable for everyone. This content is not personalised investment advice, and Cooper Parry Wealth can take no responsibility for investment decisions you may make as a result of this information.