Soaring demand for specialist defined benefit pension transfer advice is stretching available adviser capacity to the limit.
A pre-advice “triage” system is key to managing this demand efficiently.
The FCA rules are clear. An adviser’s starting assumption should always be that a DB transfer is not suitable. A transfer to DC should only be recommended if it is clearly in the client’s best interests.
But the lure of high transfer values, and the attractions of pension freedoms, are driving significant numbers of people who need their guaranteed DB income to consider trading it in.
Getting a triage system right would help advisers quickly identify if a transfer to DC is likely to be more appropriate for the client than sticking with DB. It would also help the client better understand if moving from the safe DB environment is likely to be right for them before incurring the time and expense of full transfer analysis and advice.
At a high level, the complications of DB transfers can be chunked-down to four key considerations:
Triage uses simple questions, and broad rules of thumb, to probe these four areas and quickly assess whether DB is a good fit for the client or if a transfer might be appropriate and merits proceeding to advice. For example:
- What income do you need in retirement and how does your DB pension compare to this? [A streamlined factfind should capture this.]
- Are you comfortable taking investment risk? [Standard attitude to risk tools can draw this out.]
- Is tax or legacy planning more important to you than a guaranteed income?
- Is the transfer value good value for you? [This can be broadly assessed using simple metrics, such as transfer multiples, that is, transfer value/ accrued DB pension]
- Are you in good health?
- Do you need the guaranteed DB income?
- Could you run out of money if you transfer? [Again this can be broadly assessed using simple metrics, such as ‘draw rates’ – that is set a maximum level of income expectation against the transfer value to spot people that clearly should not transfer. This can be explored in more detail if get through triage.]
- Do you have other assets to fall back on? [Standard capacity for loss tools can assess this.]
- How do you feel about moving from a safe, guaranteed retirement income for life to a flexible pension pot subject to market fluctuations?
- What is it about the guaranteed income for life which does not appeal to you?
- What will you do if you transfer and your plans go off track?
A skilled adviser can cover this triage off in a short telephone call, reaching agreement with the client on whether or not it is right for them to move to transfer analysis and advice.
This means advisers can save time to focus on those clients that need full advice, and save a lot of prospective clients time and money if they work out quickly it is not right for them.
There is also advances in artificial intelligence and interactive technology to think about. Do these raise the possibility of not just triage, but online triage systems. These could help the majority of savers with simple needs to work out for themselves that they are best sticking with DB, and filter the remainder, where a transfer is more likely to be appropriate. This would then link up with advice, and free up adviser capacity to serve them.
Alastair Black is head of financial planning at Standard Life