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Fever pitch: The real story on DB transfers and insistent clients


Demand for pension transfers has reached fever pitch amid growing concerns about how advisers are approaching pension transfer business and how clients are being charged.

The insistent client debate has focused attention on a lack of appetite to carry out pension transfers from defined benefit to defined contribution schemes. But on the advice frontline specialist pension transfer firms are seeing record levels of enquiries, which have fuelled a surge in business in recent months.

As pension transfer values look increasingly generous, advisers are being urged to consider why a transfer may not be the taboo subject it once was. At the same time, concerns are mounting about excessive char-ges which undermine the work involved.

So what is the reality of the pension transfer market post-pension freedoms? Are advisers still hiding behind the insistent client banner and failing to recommend suitable transfers? Or has the pendulum swung too far the other way, with volumes of pension transfer business pushing the market towards a failure akin to the pensions review?

‘Through the roof’

The Association of British Insurers’ product sales data does not split out pension transfer volumes. Anec-dotally, Money Marketing has heard of one specialist firm that has seen demand for its transfer value analysis services rise sixfold since pension freedoms were introduced.

Intelligent Pensions has also seen DB to DC transfer enquiries surge and believes this is a trend that is reflected more widely. Head of pathways Andrew Pennie says: “Demand has undoubtedly gone through the roof since pension freedoms came in. We used to write one or two pension transfers a month, we are now getting around 30 enquiries a month.

“That is a significant uplift, and I would imagine firms that are specialising in pension transfers are seeing the same thing. The majority of this is being driven by customers. One person in a company might become aware of pension freedoms and what it means for them, and they will tell a friend or someone they work with. It seems to be growing by word of mouth.”

Pennie says about two-thirds of Intelligent Pensions’ transfer enquiries result in a recommendation to transfer, but as many of these come from adviser referrals these cases will have been filtered to some extent.

Transfer values are higher than in previous years, and advisers suggest that for some clients  £200,000 valuation provided five years ago may now have gone up to between £700,000 and £800,000.

Aegon pensions director Steven Cameron says there are a number of factors driving the increase in transfer enquiries.

Cameron says: “Firstly, the transfer values being offered by DB schemes have risen sharply to reflect record low interest rates. Secondly, some high-profile issues with DB scheme funding have led some individuals to question how secure their benefits are if left in the DB scheme.

“Last but not least, the pension freedoms have boosted the flexibility on offer for those moving from DB to DC. All these factors mean DB to DC transfers are no longer taboo. They also mean we need to take a fresh look at what factors advisers need to take into account.”

“I hope we’re not heading for another pensions review type of situation, but I suspect we will see elements of that”

Loaded charges

Advisers have raised concerns that the cost of transfer advice at best undermines the work involved, and at worst is unfair to clients.

Wishart Wealth managing director Iain Wishart argues that before any transfer value analysis is carried out, a client needs a financial plan, backed by lifetime cashflow planning. He says if a client only wanted a standalone transfer analysis he would be unlikely to do the work.

But he is concerned about the approach he has seen taken at other firms. He says: “There are people doing free and cheap pension transfer advice and analysis. I’ve seen examples where everything is free up to the point of transfer, and then advice fees come in at up to 3 per cent initially and 1 per cent a year ongoing, with minimum charges of £2,000 and a maximum of £20,000, plus wrap and fund fees on top.”

Wishart notes the free service often seems to involve the client investing in the adviser firm’s own promoted funds. He is wary about firms offering pension transfer analysis for free. He says: “If someone is offering that service for free or too cheaply, there is an inherent bias there because eventually you are going to have to recommend that somebody transfers – otherwise you are going to go out of business.

“A lot of advice firms seem to load the charge for doing this work onto the transfer value. We have come across one firm where there was a £1.2m transfer, where they have taken 3 per cent. That equates to £40,000 when our fee would be nearer to £6,000 for the same job. To a consumer, I would say anyone offering this complex service upfront and saying it’s free – they have to be aware these firms have to make a profit somehow. How independent is that advice going to be if it is dependent on a transfer going ahead?”

Beyond critical yield

Post-pension freedoms there is a growing sense among providers and advisers that the current approach to calculating whether a transfer is suitable or not is based on an out-dated system.

Cameron says: “The transfer value analysis methodology predated pension freedoms and is based on comparing DB benefits with what annuity could be secured from the transfer value, projected forward to scheme retirement age. While a poor comparison or a high critical yield to match may make advice to transfer look less suitable, it is no longer the only factor. Individuals particularly keen to take benefits from an earlier age or in a more flexible way may place a high value on the pension freedoms. Advisers should be able to take this – and also any concerns over the employer’s ability to deliver promised benefits – into account.”

Cameron would like to see the FCA provide updated guidance to this effect.

He adds: “The regulator has indicated it plans to revisit the approach to calculating compensation when advice to transfer from DB to DC is deemed to have been inappropriate. Before doing so, we believe it should be clarifying to advisers that it is perfectly right to look beyond historic TVAS methodologies.”

Pennie says deciding the suitability of transfer advice “is not just about critical yield any more”.

He says: “There are still some advisers that won’t recognise that a transfer might be in the client’s interest, and therefore won’t get involved. Even if they don’t have the permissions or the ability to advise, they’ve got to be able to spot the opportunity. That’s a very dangerous game to play if advisers are not doing that.  We also think there are advisers who are trying to stand behind the insistent client badge, and reject more than perhaps they should do, and if they’d dug a bit deeper they might have found reasons why a transfer was justifiable.”

The transfer dilemma

Despite the volumes of pension transfer business being written there are advisers who remain wary about transacting these cases and the potential future liability that comes with them.

Royal London pensions specialist Fiona Tait says: “This is a complicated area, and you are always going to have a risk when somebody opts to give up a guarantee. The FCA and other regulators are right to concentrate on this because once a guarantee is gone that person can’t get it back. That said, the guarantee doesn’t always fit the client. That’s why individual advice is useful, because an adviser should be looking at the pros and cons of staying and the pros and cons of moving, relative to that individual’s situation.”

Pennie says, as it stands, many clients who wish to transfer are being rejected despite the “softer factors” at play. He gives the example of someone a few years away from receiving their DB pension income who is keen to finish work, or someone who wants to pass on their pension, or in ill health, where transfers can be “both attractive and justifiable”.

He says: “I hope we’re not heading for another pensions review type of situation, but I suspect we will see elements of that, unfortunately. Firms have got to be very confident they have a robust system in terms of what they’re doing and how they’re doing it.”

Cameron adds: “For historical reasons, many advisers may understandably be inclined to steer well clear of advising on DB to DC transfers. But circumstances today are very different from when we had the pensions review and, for the benefit of savers, transfers mustn’t remain a taboo subject. This is prime territory for the FCA to signal a revisiting of the regulatory view.”

The big business of final salary transfers

Some firms are choosing to outsource pension transfer advice to specialists and third parties. In one marketing brochure seen by Money Marketing, clients of Raymond James Investment Services’ Market Harborough branch are encouraged to “explore their options” for their final salary pension.

Raymond James refers these clients to a firm called Tideway Investment Partners, with the brochure including a disclaimer saying Raymond James does not give advice on the suitability of final salary transfers.

Asked by Money Marketing about the Tideway model, partner James Baxter says: “We have members of 200 different schemes who come to us for advice. We do it for other advisers and we also act for schemes where they are looking to provide advice to members.

“We are probably handling twice as much business this year compared with last year. It is very much post-pension freedoms, but the rate of enquiry seems to have increased in the last three to six months.

“We have to use an advised Sipp for the actual transaction because we have to be able to control the transfer and manage the transaction. The advised element means there’s tri-partite access to the information, so it’s not just between the Sipp provider and the client. If the client wants to go into a DIY Sipp afterwards that’s fine with us.

“The idea it is high risk to transfer out is no longer valid. In many cases it can be lower risk to have the money in a client’s control, perhaps through a Sipp, rather than to have the money still in the scheme.

“The fact our professional indemnity insurer has underwritten it suggests they don’t think it is as high risk as people think. But they are a specialist provider, they are not your run of the mill advice firm insurer, as I don’t think those firms have any appetite for this.”

A spokesman for Raymond James says: “As primarily investment management businesses, most Raymond James branches do not have wealth managers licensed to provide advice on defined benefit pension transfers.  However, it is recognised this can be an important area of consideration for a number of clients and the branches, therefore, sought a good quality adviser to partner with.

“As part of a detailed due diligence process, the branches decided to host joint events with Tideway Investment Partners. The due diligence process included discussions within their joint investment management committee, which considered several factors in Tideway’s proposition, including its documentation and level of support, the level of expertise on offer, and Tideway’s costs and the associated charging structure. The branches also explored Tideway’s experience and the schemes it had dealt with, and on balance felt Tideway offered a client-centred approach with excellent service level standards.”


Expert view: Andrew Tully

Andrew Tully White background 700

When to transfer (and when not to)

Recent Retirement Advantage research shows 75 per cent of advisers qualified to give pension transfer advice have seen an increase in requests to move final salary pensions since pension freedoms, with many of these being transfers at the point of taking benefits. But I do not believe that is necessarily a bad situation.

Many people have, historically, taken the view that transferring from a final salary scheme is always a bad decision. However there are a number of factors which could make a transfer a viable option, so judging each case on its individual merits is key.

Due to low gilt yields, many transfer values look very attractive at the moment.

I am seeing many above 30 times income, which is well above the historic average. The ability to pass unused pension wealth to family is also a strong driver for many people, especially when contrasted with the often poor level of death benefits for those who have a final salary benefit with a previous employer. Similarly, those who are single, widowed or divorced may benefit from the ability to reshape death benefits to suit their individual circumstances, compared to an irrelevant benefit provided by the scheme.

Final salary schemes lack flexibility, so a transfer can allow advisers to help customers control the amount of tax they pay, and gradually ease their way into retirement.

Add in the potential for greater amounts of tax-free cash and possible health issues, and there are a range of reasons why a transfer may be worth exploring.

However it is important to recognise many people are likely to be better staying put, despite the obvious attractions which pension freedoms offers. A guaranteed lifetime income should not be snubbed without careful consideration.

Andrew Tully is pensions technical director at Retirement Advantage



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There are 10 comments at the moment, we would love to hear your opinion too.

  1. Another concern when doing this work is that of PII. Firms need to put away reserves for PII increases and while there is no evidence that insurers see DB transfers as a greater risk, the size of the funds transferred are significantly higher than the sums normally advised on by firms. We are seeing £1m+ pots – put that on your renewal form and it is hardly surprising that your PII goes up! And that is ignoring any future perceived underwriting risks of doing this business based on hindsight.
    What frustrates me about all this, apart from updated regulatory guidance, is that many advisers simply refuse to look at these cases (perhaps for good reason) yet still claim to be independent and the consumer is none the wiser.

    • What frustrates me about all this, apart from updated regulatory guidance, is that many advisers simply refuse to look at these cases (perhaps for good reason) yet still claim to be independent and the consumer is none the wiser.

      An occupational pension is not an RIP and so does not form part of the independence test.

  2. I would certainly look for a clear case to transfer if an adviser refers a DB transfer to me, and that can only be after a full financial planning discussion and risk profiling. If I cannot see any merit I will not waste the client’s money and take it any further. The danger of standalone advice is that if the client does not like the answer, you may not get paid, so the work must not be conditional on a sale at the end of it.
    What you will find is that TVAS reports become almost irrelevant as they are comparing annuity purchase to the DB scheme, and the Critical Yields are too high in some cases because the scheme actuaries are optimistic on inflation to reduce employer costs, whilst insurance companies are pessimistic and therefore you need more capital to produce the same income. I am using Money Purchase projections to NRD then a drawdown model, as that is what is likely to happen in reality. The numbers then look more sensible and I have approved some large transfers on a fixed fee basis.

  3. New Pension Environment 10th November 2016 at 11:35 am

    I’ve been advising on DB schemes since joining the industry in 1986. On both sides of the fence, that is, with employers, trustees and individual scheme members.

    In my view, there has never been a better time to take a transfer from a DB scheme. Transfer Values better reflect the value of the benefits given up and this makes a transfer recommendation easier. The fact that so many transfer values are potentially “life changing” amounts is another reason to consider a transfer.

    It the regulators (tPR, FCA, DWP, HMRC) were to do anything, the starting point should be to force TDB Scheme Trustees at all times to offer a “fair value” that actually reflects the value of the benefits given up. Of course this will change with life expectancy, interest rates and so on just as DB scheme funding changes. There should not be a “win” for an employer from members transferring out. If a measure of risk for the Pensions Regulator is the employer covenant and this affects funding, the approach should be consistent across all aspects of the scheme including transfer values.

    How can the FCA say on one hand that the guarantees are very valuable, without clarifying this and saying your guarantee is only as valuable as the employer covenant and the PPF protection which of course doesn’t have any statutory backing.

    Should tPR be forcing employers to underwrite the DB scheme to the extent that a scheme member has the ongoing entitlement to a “buy-out equivalent” transfer value or some other meaningful CETV. The FCA and PI Insurers would be less concerned if scheme members always had an entitlement to a more meaningful transfer value.

    It always seems very unfair to us that a member in one scheme with virtually identical benefits to a member in another fully funded scheme can be offered a CETV that differs by 40% or more.

    This should be the starting point for a change in regulation followed by mandatory CETVs alongside the pension on benefit statements and then an appropriate revision to the advice framework from FCA.

    I suspect there will be no change and I’d also bet my shirt on the fact some BHS scheme members with a high critical yield who decided not to transfer will be wishing they had looked more closely at the yield required to match the PPF benefits and transferred out.

  4. @Sam Caunt
    “… many advisers simply refuse to look at these cases (perhaps for good reason) yet still claim to be independent and the consumer is none the wiser.”

    Well, that’s down to the definition of independence which is based on products (somewhat ironically given the path RDR purported to take) and DB pension transfers are exempt. Likewise with other non-product dependent areas such as IHT and long term care – you don’t have to advise on these to be independent.

    And what about advice on direct equity and bond investment and providing discretionary investment management? How many IFAs offer this? Yet these firms still claim to be independent and the client is none the wiser…

  5. The point about trustees having too much flexibility in the calculation of a TV was demonstrated recently when a TV of just over £100k calculated in April went DOWN by 20% when recalculated at the end of August (when the client returned the forms).

    When I complained, they explained that they had changed some of their assumptions. When I complained further, they offered to recalculate as at 31st July as they had made the changes from 1st August. This had the effect of reducing the original TV by 1% which the client was happy with.

    Incidentally, the client had been living with his partner for 29 years, but they had never married. The scheme only provided dependents benefits to spouses. He also had a BMI of 40+ and wanted to retire early and drawdown the fund until age 67 when his state pension kicked in.

    And yes, a full comprehensive cashflow exercise was carried out to back up the recommendation.

  6. This to me is more of a political time bomb than anything else. When clients have spent their funds, get scared at a major market loss, or their income has to be reduced, buyers remorse and selective memory is assured.

    At this point the politicians will put pressure on the regulator, who, having managed to drag their feet on clear guidance, will order a full review. The outcome is already foreseeable. The blame will be yet again be placed at the feet of the adviser community.

    It will not matter, that we have been requesting clear RULES from the regulator. It will not matter, that ever submission has every risk warning under the sun, that the client has signed every disclaimer you can think of, as one statement “I did not understand”, will make them useless. It will be about politicians being seen to tackle the issue on behalf of these poor consumers who have had their funds and wasted them.

    You cannot win, I personally have given up trying. It is an inevitability that there will be a pension freedom review, lots of consultants, lawyers, public sector individuals and bodies will charge a fortune to carry out the review. It is the circle of life we now live in, guidance is the new word, rules are no longer applied as rules would make these very individuals accountable in the first place. They always have a lot to say after the event, but are always very quite when a real decision are needed, at the time of the event, preferring to wait until after when they can deflect the blame away from them and get paid very well to do so.

    In the mean time, we the adviser have to battle on, do our best and hope that what we agree is correct. What a great system we have. Its no wonder to me that Pension Scams are so successful.

    • I agree that clarification from regulators is overdue. It’s rather tempting to conclude that the FCA doesn’t really know what it thinks about DB transfers.

      All the disclaimers and risk warnings in the world, however, will not help the client to make a good decision. A risk is meaningless unless it is quantified. The risk may be great, it may be small, or it may even be irrelevant to that particular client depending on their priorities.

      What leads to a good decision is a full exploration of the client’s financial position, priorities, appetite for risk and level of understanding.

      Understanding is crucial, because in the end it is the client who makes the decision, and after the adviser is long gone it is the client who reaps the financial consequences.

      I have seen too many transfers where a one-size-fits-all approach has left both adviser and client vulnerable, when potentially a justifiable case could have been built one way or the other.

      Also, very rarely have I seen the third way suggested as a possibility: not yes, not no, but “wait”.

  7. Martin Evans – spot on!

  8. We are financial advisors, the only consideration should be what is best for the client to meet their needs, we shouldn’t be looking at products in isolation and we should be retirement ‘planning’ with our customers- transfer or not being just part of that planning exercise- cherry picking products to advise on and ignoring DB schemes along with any other investment that could be used as part of that exercise is unsustainable and can only lead to overall customer detriment- that said a wider industry recognition and some focus on stopping the ‘product salespeople’ still in our midst might help. Roll on a time when we are all consumer centric for real..

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