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Kim North: In praise of a bold move on pension transfers

Kim North

I do love the month of August when the sun shines and work load reduces, giving us time to catch up with ourselves. There is always lots of reading to do and this year we had the added benefit of being able to watch the Rio Olympics.

While catching up with my reading last month, one thing stood out to me: a full-page advert in the FT Weekend for chartered IFAs London Wall Partners. It asked members of final salary schemes whether they knew the cash equivalent transfer value of their pension.

I had never heard of the firm but after Googling it I instantly thought it was a brave decision. Why? Well, it would have paid around £50,000 for a full-page advert in that publication for starters. Then there is the fact the FCA’s starting point on defined benefit to defined contribution transfers should not take place, as well as onerous compliance and PI cost implications.

That said, I believe the advert is not foolish. Current liabilities in DB schemes outweigh assets by a record £120bn following Brexit and the deficit is only set to increase. The recent news of the BHS pension scheme collapse has frightened many people who now want more individual control as they see gilts and interest rates fall.

We also know transfer values are high but the only hurdle for a move from DB to DC is the cost of the required financial advice. The charge to the scheme member, many of whom have never needed financial advice, consists of a time intensive exercise by the adviser. Indeed, providing regulated financial advice in this area can take over 20 hours to fact find the client, create a transfer value analysis report and then a personalised transfer suitability report. According to actuary Nigel Chambers of CTC, it can even take six months for the ceding scheme to provide correct information. Technology can help reduce the time taken to transact a pension transfer so it becomes more affordable.

Robo-advice comes to mind here. However, it is interesting to see robo-adviser Nutmeg has moved its proposition to offer regulated advice and the mighty Aviva, after pulling out three years ago, is to restart its face-to-face service.

I have always known that regulated financial advice from a real person is what people want. With this in mind, I believe technology should provide an informative and educational area for people to explore their pension transfer options, but there should be a real life qualified professional at the end to answer questions and offer reassurance either via a face to face meetings or Skype.

With transfer values rising, pension providers and advisers should follow London Wall Partners’ lead and encourage people to explore their pension transfer options. After all, if DC pensioners have freedom why should DB members not?

Kim North is managing director at Technology & Technical

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Comments

There are 5 comments at the moment, we would love to hear your opinion too.

  1. I too saw the ad. and thought a) Blimey, that must have cost a packet, b) It’s a brave move, c) They’ll need some meaty transfers, and charges, to pay for it and make a profit.

    Foolish however, well I hope not, but they won’t be operating below any radar will they, so I hope they’re able to get all their documentation right, in both theirs and their client’s interests.

  2. One thing that has struck me about DB Transfer advice is that IFAs are in the middle working in the best interests of the client while at the same time trying to deal with the Administrators who can screw up, delay and add costs which have to be passed on to the client. If the IFA makes a mistake – even if the administrator is partly or wholly responsible the client can complain using the cheap option of FOS. It is a lot simpler, cheaper and less risky than taking action against the administrator. You have to be very careful and experienced.

  3. Where did we get to with the FCA consultation on this subject?

    It looked at whether the starting point not to transfer from DB should continue as well as the validity, post freedom and choice, of critical yield calculations

    It would be good to know where things stand and whether FOS understands why such changes might be justified

  4. Kim – well done and thanks for raising an important issue. “After all, if DC pensioners have freedom why should DB members not?” With the starting point of the FCA and TPR saying TVs are wrong unless proved otherwise many people are running scared of this but there are as many problems from not making DB members aware of the options. I wrote about this a couple of months ago – https://www.pensionsworld.co.uk/article/pension-provision-beware-watchdog (with apologies for the art work which wasn’t my choice!)

  5. Moving from DB To DC involves the member taking the investment risk. Members of DB schemes do have the fall back of the PPF.

    Besides, how many people taking money under Pension Freedoms will be Liberated or blow the money rapidly.

    Age 55 to SRA is a long time.

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