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Govt loosens DB pension transfer advice requirements

The Government has loosened minimum advice requirements covering DB to DC pension transfers ahead of radical new freedoms coming into force in April.

Under the coalition’s Freedom and Choice in Pensions reforms, savers who want to move from a DB to a DC scheme in order to take advantage of the flexibilities will be required to take advice. In July, Chancellor George Osborne said this requirement would not apply to people with total pension savings worth less than £30,000.

However, the Government has now proposed relaxing this rule so advice is not mandatory where the transfer value of the DB benefits of the scheme the member is transferring from is below than £30,000.

Speaking during a House of Lords debate yesterday, Liberal Democrat peer Lord Newby said: “In response to feedback from stakeholders, we have decided that [the £30,000 threshold] should apply only to safeguarded benefits in the scheme from which the member intends to transfer, and be calculated on the basis of the cash equivalent transfer value, which is the standard measure in the industry.”

Towers Watson senior consultant Stephen Green says: “Advice can cost the thick end of £1,000, so there was always going to be an exemption for smaller pensions. 

“Basing this on the value of the individual pension rather than the individual’s total savings will make the rules a lot easier for trustees to police.  It also means that schemes won’t need to prepare transfer value quotations for members who are only interested in transferring a different pension.”

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Comments

There are 8 comments at the moment, we would love to hear your opinion too.

  1. Thank Heavens for the Govt. Who knows what chaos would happen without them.

  2. So those that can’t afford advice have to queue up at a CAB, or go through a decision tree online – before being at the mercy of the sales sharks.

    £30,000 isn’t an inconsiderable sum of money for many. There could be many ways of using this rather than simply taking a lump sum. The wrong advice or action could cost up to £4,000 in tax.

    But, hey, it’s ‘freedom and choice’ – so that’s ok then.

  3. @Smithy – the wrong advice could cost more than 4k, take off max PCLS and then multiply by 45% tax and assume pushes income in the tax year over 120k and it is a lot worse. BUT for most people taking a 30k DB pot the tax will be about 4k I suspect as you say unless they are well on the way to marginal are for HRT or have no income at all. For most spreading over 2 or more tax years will probably be more tax efficient, but KYC and advice is sensible to ay for if advisers can get their KYC at an appropriate level for the advice to be given, A fact find after all is not an FCAV requirement, it is Know your Client to the appropriate depth for the advice being given.

  4. Phil Castle has said spreading any payment over two years will be tax efficient, which is good advice. I advised a client to do this in order to keep him a basic tax payer. Only problem – insurance company CIS has said, not allowed have to take any payment in one lump sum. The tax position does not come into it as far as the CIS are concerned. We will see a lot of such issues in the run up to April. Do clients know they may be taxed using an Emergency code if the insurance company do not have a note of the client’s tax code?
    Interesting times ahead, as many clients think if George Osbourne said it then the Insurance Company will allow what they the client want!

  5. @Norman – they can transfer to a company which allows this, they don’t have to use the existing provider.
    being taxed under an emergency code is a short term issue i.e. until client submits tax return to reclaim any overpaid tax.

  6. Phil – advised client he could switch but client’s opinion was that CIS should be prepared to do what he wanted. Not prepared to pay any fee for the transferring of policy to alternative provider! The point re emergency code is only to alert clients to this situation. Many are not aware that this could happen,but I agree that it should be only a short term issue if indeed the client wants to complete a tax return. Or could we see a situation of where the client does not realise he can re-claim any overpaid tax. Similar to the situation where basic rate tax relief is provided automatically by provider on a PP contribution but a higher rate taxpayer is not aware, or fails to claim the higher rate relief.
    I am sure there will be more of these little issues arising as we approach April, that is why client’s need an IFA, provided they are prepared to pay for the advice given!

  7. Norman – I think one of the problems is we need as an industry to start to clarify whether someone is a client or a customer. The persons circumstances you descrtibe sounds like a transactional case if he does not want to take and act on advice and as such we as a firm describe them as customers to make the clear distinction that they are NOT a client.
    RDR was an opportunity to clarify this distinction and for the F-pack to link the longstop to the relationship, i.e. customers, the longstop 15 year clock starts ticking the minute they walk out the door and is only reset when they walk in to ANY adviser for whom a new clock starts ticking. Or a client, where a clock doesn’t exist until they cease to be a client.

  8. I agree Phil, ” customers ” are more dangerous than clients, the latter tend to value what you do for them and want to engage in a long term business relationship.

    You can guarantee that there will be more ” customers ” signing up with ambulance chasers, so we do need to protect ourselves against this increased business risk , or avoid it completely if not comfortable.

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