On the days I work from home, I am often able to drop my daughter off at school around the corner. Last week, mission accomplished, I was just about to stroll home when one of the other dads sidled up to me for a word.
He wanted to confirm I still dealt with pensions and asked whether I would have a “proper” chat with him. He had “one of those final salary pension schemes” and said he wanted to transfer out of it.
I asked whether he was sure and explained it was best not to rush such decisions. But he just smiled and told me he had special circumstances. You see, someone had told him all about it and how beneficial it could be. Doesn’t it seem like everyone these days has a mate who knows all about defined benefit transfers, has done it themselves and thinks it was the best decision ever?
As the fellow father lives just around the corner I suggested that, while I am not able to give any advice at all, we should have a chat over a coffee some time.
I came away from the school that morning trying to put our brief exchange into some sort of context. I know DB transfer valuations are the flavour of the month but when they get to the school gate you know they have become mainstream.
“Doesn’t it seem like everyone these days has a mate who knows all about defined benefit transfers, has done it themselves and thinks it was the best decision ever?”
How special are your ‘special’ circumstances?
The issue is that, just like that chap, everyone thinks they have special circumstances. I know him and, with my limited objective external knowledge, I could probably argue either way for him to transfer or remain in his scheme.
The company he works for will have a good scheme and has recently come under new ownership, so I can imagine some scheme consolidation exercise would happen in the near future. I am of the understanding he has been in his job for over 25 years, so it will be a decent transfer valuation. However, I would also hazard a guess it would be a significant percentage of his total retirement wealth.
Now, we will probably have a chat and I will go through some of the factual information with him; some of the specific issues he will need to think about. I will even mention the G-word (guarantee) and tell him he is likely to be asked about his attitude to investments and investment risk.
Finding a willing adviser
Then we will get to the part he may not expect. The part where I tell him he will need to find an adviser in order to go through the exercise and this will cost money. Of course, I will stress how invaluable such advice is.
I am sure I will be asked how much. To be honest, if I quote him the range I was quoted to look at my own transfer it will scare him, so I will try and refrain from giving a cost.
I will certainly point out some advisers might not want to take him on just for this one transaction and may therefore wish to provide an ongoing investment service for an ongoing charge. I will also mention he could well be advised not to transfer at all but it will still cost him the same amount. After all, that is the value of good, objective advice. At this stage, I am not going to mention the phrase “insistent client”.
I am fairly sure my friend, who has never used an adviser before, will immediately question why he needs one. I will explain there are important issues to consider and professional advice is absolutely key. He will tell me it is all a bit pricey and he should have never listened to me and gone with his mate. In my mind I will think “but you still have your pension.”
On second thoughts, perhaps I could refrain from answering my phone and keep away from the school gate for a while…
Mike Morrison is head of platform technical at AJ Bell