I have just completed a number of seminars around the country, during which I asked for some opinions from the advisers attending on pension freedoms. There has been so much change in the industry in the last few months that it was interesting to have the opportunity to really talk to them.
One of the things that stood out was that 62 per cent thought advice needed to change because of the reforms. For me, people’s needs have not suddenly changed because the retirement options are slightly different. For advisers, however, a big impact will be the changes to when a pension transfer specialist will be required, which will affect both those with the permissions to advise on them as well as those that do not.
The area I feel that will impact most on advisers, especially those who are not pension transfer specialists, is at-retirement advice.
Currently, any adviser can advise on their client’s pensions at retirement even if they have a defined benefit scheme or a section 32 with guaranteed minimum pension. Since 2011, when the FCA clarified when a pensions transfer specialist was needed, immediate vesting transfers have been outside the rules for “pension transfers and opt outs”.
This has meant that, when reviewing the client’s immediate plans, if it becomes apparent the DB scheme does not meet their requirements then they can be transferred. Many reasons, especially the difference in death benefits and control, are often cited for these transfers. There is no need to look at the complex structure of the DB scheme in deferment, just the benefits that will be paid there and then. In addition, there is no requirement for a transfer value analysis, which is complicated and time consuming to produce in some cases.
In its policy statement on proposed changes to pension transfer rules (PS15/12) the FCA announced this is all going to change. There will be a need for a pensions transfer specialist to be involved in a transfer even for immediate vesting transfers of defined benefits and section 32 with GMP. This will mean that, should an adviser not have a pensions transfer specialist within their company, they may need to outsource many of their clients’ at-retirement reviews. The reasoning behind this is that the difference between the guarantees in a DB scheme and the new flexible benefits available in a defined contributions scheme is much greater than ever.
On the flip side of this, the removal of the need for a pensions transfer specialist where there are no safeguarded benefits, even if in an occupational scheme, will open up this type of advice to those previously excluded. This is a very sensible move on behalf of the FCA because if there are no safeguarded benefits then there is little difference between an occupational scheme and a personal pension these days. Overall the changes will protect clients, which can only be a good thing in the long run.
Claire Trott is head of pensions technical at Talbot and Muir