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Standard Life urges IFAs to manage clients’ DB transfer expectations


Standard Life is urging advisers to manage client expectations that defined benefit transfer values do not increase and decrease in line with equity markets.

Standard Life financial planning propositions head Alastair Black says helping clients understand how transfer values behave is increasing in importance as DB transfers become a more mainstream part of advisers’s businesses.

Technology firm Origo said in January it has facilitated £25bn worth of pensions transfers in 2016, which represented a 19 per cent rise on the previous year.

At the same time, DB transfer values have increased with Black citing examples of some going up by as much as 80 percent.

Black says: “If you look at what has happened to transfer values in the past three years they have gone up quite dramatically. What we do know is that DB transfers will largely follow gilt yields. Given that they have changed so much in past years DB transfers should have gone up by something comparable.”

However, he explains that transfer values have now started to fall slightly as gilt yields have started to rise.

He says: “Where it is sensible for the client to move, that can take some time. It is helping to set the client’s expectations that transfer values will go up and down but to set their expectations that they will not necessarily go up and down in line with equity markets.”


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There are 4 comments at the moment, we would love to hear your opinion too.

  1. A very hot topic and being visited frequently within our office due to the statements frequently being made within the media “this is the next PPI”.

    Gilt Yields meant that between late August 2016 and Late November 2016 transfers values spiked. This did leads us to conclude that unlike in the past, we would, for the right clients consider transfers of DB arrangements before benefits were required. These clients had critical yields between 2.5% and 5%. To manage clients expectations we have modelled on returns of 5%, 3% and as low as 1%. We always explain returns are not smooth, that volatile markets could mean funds and income run out sooner, they have to have the right attitude to risk and more reasons then just securing death benefits.

    The issue for us and our change in stance for this period was simple, if gilt yields rise (which they have) the damage/loss (already seeing 10% reductions in CETV’s), even with income increasing and therefore the CETV within the scheme, could be greater than market exposure. Take a 50 year old, wanting to access PCLS at age 55, does not want income. If gilt yields increased back to the leaves before 2013, many of the clients we have seen could suffer a decrease in CETV of 50%. By refusing to transact we could make the client worse off if they have no doubts they will not take the DB arrangements income and have sufficient other wealth to support them. As long as the risks are fully explained (typically three meetings to achieve this) the client must be given the option.

    It frustrates me at the lack of clear guidance from the regulators (FCA/FOS). The FCA is still only highlighting poor outcomes, with conflicting guidance. We have not had any new regulatory statements concerning DB transfers such as those required by investment and mortgage business. Surely the regulator at a minimum should be insisting that in big red letters a statement of the risk should be mandatory.

    I am sure the claims in the future will look like PPI, but like PPI how much of this will be down to the regulators not acting, not providing clear guidance, better still rules. I once heard someone thanking someone for pointing out they failed, they said “thank you very much, to fail you need to do something and I know, no one could ever accuse you of failing”. At this time I feel the coming storm, the uncertainty for all advisers of what is and is not correct to transact, is very much down to lack of clear parameters from the regulator as they are doing very little. They are sitting back, waiting until they can use hindsight to come up with the perfect solution, by then it will be to late. I wonder, in ten years time having refused to transact, if gilt yields have risen, the CETV reduced substantially, what would be the odds of the regulator stating it was the advisers fault as we did not tell them they could NOT transfer you.

  2. Look the FCA doesn’t understand DB transfers, so people have to pay for good holistic advice, which is easily justified. As always they are just looking the next money spinning enquirey to try and gain anothe badge for the FCA. It has little or nothing to do with client protection.

  3. Critical yield growth rates which are based on purchasing a conventional lifetime annuity to match the estimated scheme benefits, when few people wish to purchase an annuity.

    Estimated DB scheme benefits that themselves will no doubt change, as legislation has to change to reduce the burden on employers to prevent even more schemes going into the PPF.

    Will the PPF benefits have to be reduced as more employers with DB schemes fail post brexit?

    I wonder how many advisers will look back and say I wish I would have advised my client to transfer whist transfer values were so high…

  4. Literally just had a client walk through the door whose already substantial CETV has increased by a whopping 97% in 2 years. The client had already done his own pension income forecasting and researched the pros and cons. After a lengthy discussion I couldn’t fault his logic but still sent him away to think about whether or not he wants to instruct me.

    He does…………………he’s going to get a significant lump sum (over half a million) to boost his pension pot along with all the additional flexibility that pension freedoms give him. He knows what he is giving up and still wants to proceed. Once I have completed the 1,395 page suitability letter detailing exactly why he can’t say it is my fault should he run out of money we’re laughing.

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