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Caring for sharing

Transfers are big business and it is a lucrative sector that could be one of the fastest-growing markets this year.

Look at the projected figures from the ABI. Personal pension transfer plans could amount to £1.4bn and section 32 plans could total £580m. This equates to £59m initial commission plus £9.9 million fund-based commission.

Can you afford to ignore this market?

To many, pension transfers only mean moving from an occupational scheme but there are many opportunities for IFAs, including outdated personal pensions, retirement annuities, increasing death benefits, early retirement, spouse&#39s pension or a restrictive definition of earnings.

Divorce and income drawdown also offer openings. Every year, 1.5 million people get married but 40 per cent end in divorce, a trend that the Government predicts will continue. The greatest increase is among the 45 and over group. Many have been married for over 20 years, with at least one spouse building up substantial pension provision.

Pension sharing is an alternative to offsetting and earmarking, available since December 1, 2000.

Pension sharing represents a clean break at the point of divorce.

Unlike offsetting, it results in both parties securing with certainty an element of pension income at retirement.

With the Law Society estimating that up to 50,000 couples a year could take adv- antage of pension sharing, IFAs need to be ready.

Both husband and wife will need initial guidance on the options for pension sharing on divorce. If pension sharing goes ahead with a transfer value payable, then spo-uses of those in private funded schemes will need specialist advice.

For every pension credit there will be a pension debit. Those subject to a debit will be in urgent need of advice to ensure that any pension shortfall is addressed.

Where the option of joining the former spouse&#39s scheme also exists, the advice becomes more complex.

Once the transfer has been completed, both parties may seek further advice on financial matters.

When selecting a provider to deal with and help with the opportunities offered by pension sharing, IFAs should look at recognised transfer specialists which ideally provide:

A competitive contract.

A comprehensive transfer analysis system.

A wide range of investment choices, including external fund managers.

Marketing material to allow IFAs to begin discussions with solicitors, trustees and clients.

Last year, the value of drawdown sales grew by almost 60 per cent to a total of £10,032.7m. Drawdown is an established and lucrative market but a new opportunity has arisen. The Personal Pension Schemes (Transfer Payments) Regulations 2001 introduced a provision permitting drawdown investors to transfer between drawdown providers.

Pension fund withdrawal has been looked upon by the Inland Revenue as a way of deferring annuity purchase but, for all intents and purposes, the client is in retirement. The client can benefit from flexibility in taking their income but their fund must achieve sufficient investment growth to sustain the required income, allowing for mortality drag and contract charges.

Clients&#39 plans need regular reviews but remember the rules that apply for transfers. The client must be under 75 and not have already purchased an annuity. The transfer payment must comprise the whole of the drawdown fund. On transfer, the client or survivor must continue to take income withdrawals from the new provider. As this would be an ongoing drawdown arrangement, further payments could not be made into the plan.

On receiving the transfer, the new provider will automatically recalculate the maximum and minimum income levels, produced from the Government Actuary&#39s Department tables.

A new triennial review period will start afresh from this date. Once the transfer has been completed, the drawdown fund must remain invested with the new pro-vider for at least one year.

Several reasons make a transfer attractive. If a pro-vider&#39s performance is poor, consider transferring. Many could benefit from a wider fund selection and access to external fund links.

Continued poor administration can lead to failing confidence, increasing the desire to transfer. Early providers of income-drawdown arrangements may have uncompetitive charging structures.


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