A Pension Transfer Specialist is a UK qualified adviser who has taken additional qualifications to advise on pensions with safeguarded benefits.

Essentially, pensions with a promise to pay pension benefits can only be advised upon by an adviser who has the relevant qualifications. The caveat to this is if the benefits are less than £30,000, in which case the pension member can enact a transfer themselves if they wish.

https://www.gov.uk/government/publications/pension-benefits-with-a-guarantee-and-the-advice-requirement/pension-benefits-with-a-guarantee-and-the-advice-requirement

A change in the Pension Schemes Act 2015 brought about changes that made the advice of certain schemes with protected benefits mandatory.

These protected, or safeguarded benefits, are not money purchase or cash balance benefits. The pensions that are included are:

  • Guaranteed Pension which include Guaranteed Annuity Rates (GAR’s)
  • Defined Benefit/Final Salary Pensions
  • Guaranteed Minimum Pensions (GMP’s)
  • Hybrid Schemes

If a member of these schemes is considering transfer their pension benefits to a more flexible arrangement, advice by a Pension Transfer Specialist is required. These guaranteed schemes can be complex and need detailed analysis together with considering a member’s individual circumstances. 

Advice is required whether, the member wishes to transfer their whole scheme, part of their scheme, take a flexible income or a cash lump sum.

A Pension Transfer Specialist needs to consider a variety of factors before providing advice. These include.

Comparing the offered guaranteed benefit to the offered transfer value to determine if the offered amount is good value. There is no fixed way of calculating transfer values against offered income as all schemes value this differently. Some schemes may offer a multiple of 20 x income and others may offer 50 x income. The more multiples of offered income against the transfer value is often seen as a more attractive offer. E.g.

Person A – is offered £20,000 at normal retirement age or a transfer value of £400,000 (20 x)

Person B – is offered £20,000 at normal retirement age or a transfer value of £1,000,000 (50 x)

This is only part of what a Pension Transfer Specialist considers, however.

They will need to determine

  • If the member is married
  • Has dependent children
  • What their current and future income looks like
  • What their current and future expenditure looks like
  • Has other guaranteed pension income
  • Has other defined contribution pensions
  • Has other saving both cash or investment based
  • Has other assets such as investment property
  • If the member is in good health
  • The stability of the safeguarded pension scheme (is it in trouble or well underfunded)
  • If there is any debt, mortgages or loans

On top of the above and most importantly, a Pension Transfer Specialist needs to determine the needs and objectives of a member who is considering a transfer.

One of the most popular objectives is flexibility. However, this is a too broader definition. Why do they need flexibility, when do they need flexibility, how much flexibility is required? This all needs to be quantified by the financial adviser as, without it, they won’t have a full picture of the member’s circumstances and can’t make a suitable recommendation.

In short, if a member is wanting to transfer their pension, the Pension Transfer Specialist has to be confident that their needs and objectives can’t be met by staying in their existing scheme. This has to be documented and quantified against their circumstances.

A Pension Transfer Specialist offers advice only once an agreement has been made to undertake the process. This can be either in the form of Abridged Advice or Full advice.

More on abridged advice here

If full advice is agreed upon, the adviser needs to quote the full cost of their services.

The outcome of full advice is either

  • To Transfer the pension, or
  • To stay in the existing scheme

Their pre-agreed advice cost will be applicable in both instances.

The Pension Transfer Specialist will provide a suitability report detailing the members existing circumstances, analysis of the safeguarded scheme and reasons why or why not they deem a transfer suitable.

If a recommendation is made to transfer the pension, additional advice will be provided on a suitable portfolio of investments and plan provider.

It is extremely unlikely that an adviser will transfer a pension and let the member choose their own funds. The adviser is responsible for how funds are invested as guided by the Financial Conduct Authorities (FCA) guidelines.

Advice in this area is both dictated by FCA rules and conditions imposed by the indemnity insurers of the advising firm. For instance, many indemnity insurers now restrict advice firms the cover, on advising anyone under the age of 50.

In conclusion, a Pension Transfer Specialist is required in order to discuss the possible transfer of benefits from a safeguarded benefits pension. They will assess a member’s circumstances whilst applying strict regulatory guidelines in order to advise on the most suitable outcome.

    Abridged advice is designed to help advisers filter clients for whom a pension transfer is unlikely to be suitable.

    It provides a mechanism to engage with someone who wishes to discuss their possible defined benefit transfer, but without going into full advice and most importantly committing the client to the full costs of advice.

    It allows the adviser to ask for some standard basic information from the client to allow them to make a decision as to which possible route is feasible.

    It is an optional service advisers can offer as part of their process and has two possible outcomes.

    • A personal recommendation that the client shouldn’t transfer or convert their pension.
      This can only be done if there is sufficient evidence from the limited information provided by the client to demonstrate a transfer isn’t suitable.
    • A summary that it is unclear whether the client would benefit from a pension transfer based on the limited information provided as part of the abridged advice process. The purpose of this is to then offer full advice where further information can be gather to form a solid recommendation either to transfer or stay within the scheme.

    It’s important to note that the outcome from abridged advice can’t be a recommendation to transfer. This can only be possible by going through a full advice process.

    Assessment

    All advisers will assume a starting point that a pension transfer isn’t suitable. This follows guidelines stated in the FCA handbook.

    However, as part of the advice, an adviser should determine if staying within the scheme is also suitable. For example, the scheme could be well underfunded and at risk of failing.

    The areas an adviser should consider and assess as part of the abridged advice process are:

    • Intention of when the client wishes to access the pension
    • The risks of staying in the current scheme
    • The risks of transferring from a guaranteed income to a flexible benefit scheme.
    • The views of a clients need for a guaranteed income
    • The client experience, views and knowledge of investments. Has the client managed an of their own investments in the past.
    • Has the client paid for advice in the past
    • How much income does the client need in retirement and how much of this is met by the current pension benefits. What would be the impact of losing this guaranteed income.
    • Are there any other ways to achieve the clients objectives from other funds/income
    • The client own personal attitude to investment risk

    An adviser offering abridged advice should offset the cost of the advice against the cost of full advice if the client were to go down that route. This is to ensure the client isn’t charged twice for the same work.

    The new advice process to include abridged advice came into effect in Oct 2020 and was designed to help more people access advice in this area without potentially incurring full advice fee’s.

    Due to the nature of the new form of advice, however, many advisers were initially nervous about offering the service.

    Without any previous experience of the pitfalls and potential exposure to risk for advice firms, many felt staying away from offering such a service would protect their business.

    Already, a year into the new form of advice, questions are already beginning to be made about its suitability and efficiency of it.

    Advisers are asking for the format to be tweaked. Over the course of the last year, situations have arisen which may not have been thought of when designing the concept.

    For example, a lifetime allowance issue may come up which is relevant to the client, not the transfer, but under the abridged advice rules, this can’t be discussed.

    Further discussion on the subject can be found here https://www.ftadviser.com/pensions/2021/09/09/abridged-advice-needs-to-be-tweaked-industry-says/

    As a concept, we believe abridged advice is a good idea as it allows people potential access to advice without the full cost usually associated with it.

    Also, read about what affects defined benefit transfer values

    However, as with any new process, there are further improvements that could be made to make the experience smoother and more appropriate.

    Client Situation

    £1,400,000
    • No spouse, 2 children
    • Age 55
    • Has other deposit based savings of £350,000
    • Has no debt
    • Outgoing of £40,000 per annum
    • Plans to work until 65 with an income of £80,000

    Are you in a similar situation?

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    Learn more about transferring assets here

    I reviewed a client who had concerns over their Defined Benefit Scheme’s suitability. They were considering a transfer for a number of reasons and wanted to understand the benefits and implications of it.

    One of their main concerns was their current schemes health. Three years previous, they had been offered a reduced transfer value as the scheme was well underfunded and they wanted to clear the liability off their books. At that time the client didn’t consider it as he didn’t want to take a lower offer. As the scheme had now offered him a full value transfer value he felt it might be worth transferring. He was aware of the Pension Protection Fund, which guaranteed a percentage of the original offered income if schemes fail, but this has a cap.

    Currently 2021/2022 the limits are £37,315 for a 65 year old, £31,275 for a 60 year old and £26,884 for a 55 year old. As the clients pension had promised to pay around £55,000 at 65, this was a big concern for him. If the scheme failed, he would only come away with a fraction of what he was promised.

    Another concern was the loss of benefits back to the scheme if he were to die before getting value out of it. Having had a cancer scare a few years previous, this objective was high on his list. With no wife or dependent children, no one would be entitled to the benefits. He had 2 children, out of marrage and therefore wanted any remaining benefits to be passed to them. The only way this would be possible would be a transfer the scheme.

    The client had a good amont of deposit based savings to fall back on, which would continue to grow with his disposable income until retirement at 65.

    A transfer was recommended which met his objectives of:

    * avoiding a scheme failure which would result in a lower guaranteed income;
    * transferring the assets into his control so he had more flexibility and importantly allowed him to pass assets onto his two children;
    * increased his overall wealth without increasing his inheritance tax liability (pension scheme assets are not calculated as part of the estate on death)

    There was a lifetime allowance discussion given the size of the fund value, however, we deemed it still appropriate given the risks of not transferring and being unable to meet his objectives.

    A full cashflow forecast was created as part of the advice process which showed a more than sustainable wealth over his retirement, with the added benefit of being able to pass funds to his children.

      Read related post here: Consider the Lifetime Allowance before you transfer your defined benefit pension

      What is Final Salary Pension Transfer Advice?

      There are many different types of pensions in the UK; however, for final salary schemes, if you are looking to transfer your benefits, you need a final salary pension transfer adviser, also known as a Pension Transfer Specialist, these advisers have the relevant permission and experience to help you decide if a transfer is in your best interests. To be able to seek advice, you need a final salary pension transfer value.

      How do I know if I have a final salary pension?

      Final salary or defined benefit pensions are those which offer a guaranteed income in retirement. Often referred to as safeguarded benefits, these pensions offer a level of security over defined contribution pensions, which are reliant on stock market performance.

      A final salary pension is one that has accrued using your years of service in a company and the income you have earned during that time. The benefit you receive in retirement will be based on your salary when you retire in final salary schemes or your average salary during your career with career average schemes.

      Contributions to the pension will be taken every month from your salary, but it is the employers’ responsibility to ensure there is enough money in the pot at the end to pay your benefits. Therefore, the risk is wholly with the final salary scheme and not with the scheme member, as is the case with defined contribution schemes.

      Your scheme should provide annual updates on the expected retirement income at your scheme expected retirement date. This is usually age 60 to 65; however, some schemes offer a retirement age of 50, which is protected against the current legislative retirement age of 55.

      If you are still an active member of the scheme, your final income benefit will still be accumulating; however, if you are a deferred member (someone who is no longer in the scheme), your benefit at retirement will only go up by the stated inflation rates of the scheme.

      Why consider a Final Salary Pension Transfer

      Since the Pension Scheme Act 2015 gave rights to convert safeguarded benefits to flexible benefits, many people have taken the opportunity to transfer out of final salary pensions.

      Although final salary pensions are an excellent retirement pension for the vast majority, some could benefit from transferring to a more flexible arrangement.

      The most common reasons people are looking to transfer include:

      Why consider a Final Salary Pension Transfer

      Being surplus to needs: 

      Some people have a few pensions by the time they retire. Those wishing to transfer final salary schemes may not need the additional income offered by one or more of their schemes.

      If they can meet their retirement expenditure from other pensions and state benefits, the additional income of another final salary scheme will be tax-inefficient. Taking unnecessary income may move someone over an income tax threshold, such as 20% to 40%.

      Also, if additional, un-needed income is taken and subsequently accumulated in bank accounts, this could become chargeable to inheritance tax. Leaving un-needed funds in a pension escapes the inheritance tax calculations on death.

      Having other savings or investments

      If someone has a large amount of none-pension savings in ISA’s, cash accounts or other investments, they may not need or want to take the final salary pension income to cover their retirement outgoings. Equally, they may have additional income through buy to let properties or investment income from dividends.

      Having ill health:

      If someone has had ill health, which they know has shortened their life, they may wish to utilise the funds now, whilst they are still healthy enough to do so. Although we don’t know when we are about to die, some have had severe illnesses that statistically shorter life expectancy. In these instances, people want to get value out of their pensions or at least protect them to pass onto loved ones on death. It should be noted that if in serious ill health, death within two years of a transfer could bring about an inheritance tax liability to your estate.

      Flexibility:

      This is one of the most common reasons stated to move a final salary scheme. However, for a Pension Transfer Specialist to sign the transfer off, this has to be quantified.

      • What does flexibility mean?
        • How much do you need and when?
        • Can the existing final salary scheme meet the flexibility needs based on the answers to the above? If so, a transfer is unlikely to be suitable.

      People often say they want flexibility but don’t know how flexible they need income to be or for what.

      Perceived risk to the ceding scheme:

      Many final salary/defined benefit schemes are underfunded. This means that if all the members wanted to draw their pension in the same year, there wouldn’t be enough funds in the pot. Companies are continually overfunding schemes to make up the gap, but for some companies, this simply isn’t affordable.

      If a scheme fails, there is support in the form of the Pension Protection Fund; however, this has limits. There is a maximum annual salary limit on what they will cover and only covering 90% of the promised pension. Therefore a scheme failing is more worrying to those with larger pensions.

      Benefits of a Final Salary Pension

      Benefits of a Final Salary Pension:

      A final salary/defined benefit pension has many benefits, often overlooked by those considering a transfer out.

      For starters, the income received in retirement is based on the number of years in the scheme and the salary earned during that time. It is not, like a defined contribution scheme, based on stock market performance. The investment risk is therefore taken away from the employee and borne by the employer.

      Final salary schemes, for the most part, also include inflationary benefits. This protects your future income against the rising cost of inflation. In addition, it allows for your retirement income to not lose spending power as you move through later years.

      The scheme will have varying forms of inflationary protection, some will rise by fixed figures such as 3% per annum, and others will rise with inflation to a cap of 5%. Depending on when they were accumulated, different parts of your pension will likely rise at different rates and have different maximum caps.

      The death benefits of these types of schemes are also a valuable addition. If you die before or after retirement age, your spouse, partner or dependents may receive a payout. This is often reflective of the income you were going to receive or are receiving.

      The most common payout is 50% of income, meaning that if you were receiving £10,000 at death, the death benefits to your loved one would be £5,000 (50% of the original income). The death benefit income is also inflation proofed and will pay until the 2nd person dies. In addition, some schemes offer a dependant benefit for children, often 25%, which will pay whilst they are in full-time education or for life if they have a qualifying medical condition.

      Although most schemes have a fixed normal retirement age, it is possible to take benefits earlier. Although the income projections are based on the pre-determined scheme retirement age, usually 60 or 65, if you are prepared to reduce the income, benefits can usually be taken from age 55. The reduction compensates for the additional years of income taken against someone who waits until the normal scheme retirement age.

      At retirement, there are usually two income options quoted.

      • Full Income
      • Tax-free cash and income

      Full income is where the benefits are calculated to offer the maximum lifetime income.

      Tax-free cash is where some income is sacrificed for tax-free cash. The quoted amount is usually the maximum available; however, scheme members can swap any amount of income for tax-free cash up to the maximum available.

      Risks of transferring a final salary Pension:

      Risks of transferring a final salary Pension:

      Transferring a final salary pension comes with risks that should be carefully considered before giving up these valuable benefits.

      Investment Risk

      Moving a pension away from one which provides a guaranteed income to one which provides a flexible income comes with investment risk. In its current form, the investment risk is with the scheme. It’s down to the trustees and investment managers of the scheme to ensure the whole scheme fund has performed sufficiently to provide an income for life for everyone. Once the pension is transferred, this investment risk is then moved to the individual. If the investment doesn’t perform, the individual could run out of money before their retirement has finished (a polite way of saying before they die). If markets aren’t kind, or investment decisions are poor, there is no safety net.

      Longevity risk

      One of the main benefits of a final salary/defined benefit scheme is its ability to pay an income for life, whether this is to age 75 or 105. The income is also inflation-proof, for the most part, and therefore removes the risk of running out of money.

      Once a pension is transferred, it has to be managed throughout retirement, however long this may last. If someone has overspent in their early years, there is a risk of running out of pension income if they live longer than expected. The result could be a significant change in standard or living or poor care home provisions.

      We would all love to spend our last pound the day before we die, but practically, this isn’t possible. It is often the case that people hold back a lot of their pension for later life only to die with thousands before they expected to. A final salary scheme removes this lifetime worry of managing a pot of money to the end.

      How long could a final salary pension transfer take?

      Moving funds from a scheme pension to a flexible arrangement isn’t a quick process. When a cash equivalent transfer value is received, the scheme provides a guaranteed three-month window to decide to transfer. The reason for this guaranteed period is it typically takes this long with an adviser to reach a decision.

      A pension transfer specialist is required to fully understand personal circumstances, motivations, finances and the future plans of someone looking to transfer. They also have to understand the ceding scheme fully. When a pension transfer specialist requests further information from a scheme, the scheme can take anywhere from a week to two months to reply. This all eats into the three months guaranteed final salary pension transfer value window.

      A common misconception is that the actual transfer of the funds has to happen within three months; this isn’t the case. As long as the member’s intentions have been sent to the scheme, along with a signature from the financial adviser and the new scheme provider, this will secure the guaranteed transfer value by the deadline date. The scheme then has a further six months to enact the transfer, although many schemes do this a lot sooner.

      Typically, a final salary transfer would take four months from the point of engaging with a pension transfer specialist to the funds being transferred. However, on infrequent occasions, it may take two to three weeks and on the extreme side up to nine months.  

      What have been the problems with pension transfer advice?

      There are a few rogue traders in any business, and this doesn’t escape the financial service industry. Transferring final salary pensions can be lucrative for financial advisers, and there have been some bad practices in the past. Advisers are paid through final salary pension transfer fees. These are often taken from the pension once transferred.

      The most recent and well-documented cases are those who had a British Steel pension scheme. During the ongoing talks of a takeover and the business failing, all British Steel Scheme members were sent a final salary pension transfer value along with a cover letter stating their options.

      This included transferring to a new British Steel final salary scheme or transferring their benefit to a flexible arrangement, therefore giving up their guaranteed income rights.

      There are stories of so-called financial advisers camping out in Steelworks car parks so that they could sign employees up to a transfer as they came off shifts. This is not final salary pension transfer advice, this is hard-selling unethical practice!

      Transferring a final salary pension shouldn’t be a quick decision. It shouldn’t be forced on you or suggest to you without basis. For example, if you don’t understand your scheme benefits or the impact of the decision to transfer, you shouldn’t transfer.

      The risks of being rushed or coerced into a decision are irreversible, and often any financial compensation isn’t sufficient.

      The Final Conduct Authority is doing an excellent job of tightening rules and providing updated guidance to financial advisers on who they should consider for a transfer. Still, there are always a few bad eggs who don’t have the clients interests at heart.

      I would always recommend spending time researching a financial adviser, reading reviews or getting a referral from someone who has been through the process with someone. Never rush a decision, don’t invest in anything that either sounds too good to be true, or you haven’t heard of or aren’t comfortable with.

      This is a question I get asked by many clients that what affects affects benefit transfer Values

      Should I transfer now or wait for the value to go up in the future?

      The short answer is that we don’t know. What we do know is that there are many factors that affect a defined benefit scheme transfer value and most of these are individual to the scheme itself.

      Schemes generally don’t publish how they calculate their transfer values as these are specific to how the scheme is run. We can’t therefore calculate any schemes transfer value given the lack of workable data.

      We can however use some parameters that many schemes use to gain an insight into why the values can change rapidly from month to month and year to year. We can’t just expect them to go up over time or relate them to defined contribution schemes which are linked to general investment market performance.

      A defined benefit scheme is an agreement to pay a set level of income in the future which is generally inflation proofed (meaning the value of the benefits go up over time to compensate for the rising cost of goods and services).

      In short, the scheme takes contributions from member and the company to invest and hopefully have enough to pay all the member in the scheme when they reach retirement and for the rest of theirs and their spouses/partners lives.

      The risk is therefore borne by the scheme and not by the member, as is the case with a defined contribution scheme.

      As a result of pension freedoms, many members are now wanting more flexibility from their defined benefit pensions and are requesting swapping the guaranteed income of a defined benefit scheme for a lump sum.

      Over the last few years we have seen a sharp increase in those requesting a transfer value and indeed an increase in the transfer value itself, when compared to previous years.
      One of the main factors which affects most transfer values is the longer term gilt rates. A gilt is issued by government and is essentially a loan which is purchased in promise to pay a certain level of income for a certain period of time.

      Gilts have been issued by the government in hope of raising funds to pay for the additional costs of running the country. These gilts have been swallowed up, mainly by central banks which has intern forced the gilt yields lower.

      What has all this got to do with defined benefit transfer values you may ask?

      Well, the lower the gilt yield, generally, the higher the Cash Equivalent Transfer Value (CETV).

      As a yield goes lower, a pension scheme has to make available a larger amount of money to get the same rate. Therefore, more money is offered to achieve a similar return as to when the yields were higher.

      In simple terms, if it cost £100 to get 1% yield and the yield then reduced to 0.5%, it would then cost £200 to get the same return.

      If we look back at the 15 year gilt rate we can see how volatile this has been and why transfer values may have had a rapid rise, particularly during the pandemic.

      This is a basic example and as mentioned previously, this is one of many factors used to calculate the CETV.

      Other factors that can affect the CETV are scheme specific. How well is the scheme funded? How many members are there? Is the scheme closed to new members? What is the performance of the underlying Fund?

      The decision as whether to wait for a potential higher CETV in the future will come down to individual circumstances.

      Do you need access to the funds?

      Generally, if you don’t need access to a lump sum or income from your pension, it’s often advisable able to wait until you do. If you make a decision to move your scheme now, with the hope of having flexibility in 3 years’ time, the markets may have turned against you meaning the benefits you through you had are now reduced.

      I think I can invest better than my scheme and provide a better income that they are offering.

      This may be the case if markets perform, but remember, the risk will be borne 100% on you. Whilst your pension is with the scheme, they will bare 100% of the risk and if markets don’t perform, you’ll still get the same promised income. It will be your scheme who lose out.

      Transferring your pension may be suitable in some circumstances such as:

      Wanting to retain the assets for your family on death.

      Having access to a larger amount of income earlier in retirement to meet expected costs which your DB scheme income won’t cover.

      If the DB scheme is surplus to your requirements because of other pension income/assets.

      Poor health meaning you might not expect to live long enough to extract the benefits.

      Being single with no dependents.

      There is no fixed reason as to whether a transfer is suitable, it’s all to do with individual circumstances. If you want to explore a possible transfer, give me a call or drop me an enquiry, I’ll be happy to have a no obligation initial chat.

      Read about What is Abridged Advice

        The lifetime allowance (LTA) used to be out of reach for most but is now being factored in more and more with those looking to transfer out of a defined benefit scheme.

        The lifetime allowance is the maximum allowable to be saved into a pension without paying an additional charge current allowance is £1,073,100 (2021-2022), however, it has been as high as £1.8m in previous years.

        The penalty for breaching the LTA is a 55% tax levy on funds above the allowance if taken as a lump sum or 25% if taken as an income (you will pay income tax on withdrawal also, roughly equalising the tax paid as if taken as a lump sum). 

        The limit applies to the total value of all your pensions including Final Salary (Defined Benefit, DB) and Personal/Group personal pensions (Defined Contribution, DC) schemes.

        The major difference between DB and DC schemes when it comes to the LTA is the way they are calculated for LTA purposes. With DC schemes it’s simply the fund value against the LTA whereas with DB schemes it’s the value of the annual income x 20, plus any tax-free cash.

        The way that DB schemes are calculated most often means it uses substantially less of your LTA than the equivalent value of the offered transfer amount.

        For example.

        A DB offers an income of £20,000 with a lump sum of £100,000 or a cash equivalent transfer value of £600,000.

        Using the DB LTA calculation method – 20 x £20,000 = £400,000 plus the £100,000 tax-free cash is £500,000.

        Taking the Cash Equivalent Transfer Value is £600,000.

        You are therefore using £100,000 more of your lifetime allowance by transferring the DB into a DC scheme, than taking the benefits directly from the DB scheme.

        You should therefore consider carefully the advantages of transferring a DB scheme if the lifetime allowance could be breached.

        Another factor to consider is the potential growth of the transferred scheme. If the resulting transfer takes you close to the limits, for example £900,000, any potential future years growth could trigger the tax charge. A way to avoid this could be to crystallise the funds before they reach the limit. This effectively prevents any future growth triggering the charge, at least until age 75, when there is a second LTA test.

        Learn about What affects Defined Benefit transfer Values?

        More on the Lifetime allowance

          I welcome the move from the Financial Conduct Authority (FCA) to publish a video helping those considering transferring out of Defined Benefit/Final Salary Pension Schemes.

          The video highlights the process which financial advisers should follow when providing advice on your pension. It provides a guide to the information an adviser should provide you with and the questions they should ask you in order to understand your situation fully.

          I encourage you to take a look on the following link

          Lean more about: The FCA Determined to Review the Redress for Unsuitable Pension Transfer Advice

          Since the dawn of pension freedoms and the ability for those in defined benefit schemes to transfer their funds into a defined contribution arrangement, a record number of transfers have occurred.

          Taking the decision to move out of a guaranteed income scheme to one which is reliant on stock market performance isn’t a decision to be taken lightly.

          However, if the advice is to transfer, as it will meet your objectives better, the next step is to find a home for the funds.

          If you’ve taken advice to transfer (transfer value above £30,000) your adviser will have taken you through a risk profiling exercise. There are no right or wrong answers with where you fit on this risk scale, but your situation should be able to tolerate the resulting volatility.

          Recent data from Selectapension (adviser transfer software provider), provides an insight into where the majority of these funds have been placed, since pension freedoms began.

          At the top of the list is PruFunds provided by Prudential. The two main funds are PruFund Growth and PruFund Cautious, with a risk level of around 4 and 3 out of 10 respectively. These are cautious/balanced funds by nature and have given consistent performance for the last 10 years.

          A reason these may be popular is because of their ‘smoothed’ returns. So, while a standard fund will move in tandem with the stock market rising and falling ever day, the PruFunds aim to smooth out this volatility by providing a more consistent return.

          When markets increase significantly, this rise isn’t added to the underlying fund performance. Instead some of the profits are held back so when the market dips, this additional growth held back can be put back on, creating a more consistent return.

          In total, around 13,500 defined benefit members have used PruFunds since the pension freedoms. It seems people are looking for a more consistent return in retirement, in order to manage income, than chasing larger returns, which comes with more volatility.

          PruFund currently has around $40 billion of assets and it seems will continue to grow given its consistent performance. PruFund Growth has delivered 33.97% whilst PruFund Cautious has delivered 19.75% since pension freedoms began.

          Other funds which are popular include Vanguard, who provide lower-cost passive funds. There has been a definite shift from traditional actively managed funds to passives given the management charge cost saving. This has been helped by passive funds, which replicate an index as a whole, outperforming many actively managed funds. The view is why pay more in management charges when the performance doesn’t justify it.

          In terms of sector specific funds, the US has been the stand out region. Schroders US mid Cap, Merian North America and Vanguard US Equity Index have shown returns or 50%, 62.95% and 59.14% respectively since pension freedoms began.

          As always, past performance is not guide to future performance and the above popular funds may not continue to perform in the future. This isn’t a recommendation.

          Learn about: What affects Defined Benefit transfer Values?


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            Guaranteed Minimum Pensions (GMP) came about when employees opted their employers out of the State Earnings Related Pensions Scheme (SERPS) between 1978 and 1997. The common pension vehicle for this was Defined Benefit/Final Salary Schemes, where benefits were built up alongside employee benefits.

            In 1990, it became law that all UK pension schemes should allow an equal retirement date for both men and women.  Before this date, it wasn’t uncommon for UK occupational scheme to have unequal retirement ages for example 65 for men and 60 for women. This echoed the state pension retirement ages at the time and so was deemed to be fair and consistent.

            The law was changed when Mr Barber took his previous employers pension scheme, Guardian Royal Exchange to the highest European court.  He argued that in was unfair for him to wait to receive his pension (he was 52), as if he were a women, he would be able to receive his pension immediately.

            The European Court of Justice ruled in his favour after a lengthy process involving complaints to the Employment Tribunal, Employment Appeal Tribunal and the House of Lords.

            The result was an equalisation of retirement ages for both men and women.

            The problem regarding GMP was that, even though the state pension ages for women are being graduated to be the same age as men, GMP benefit calculations were never altered. The calculation to equalise benefits were so complex that when calculating transfer values, these were largely ignored.

            The result of not including GMP equalisation into the transfer value of those who wished to move out of defined benefit scheme has meant that, up until the recent ruling, millions of pounds have been missed of member transfer values.

            The recent judgement, involving Lloyds Banking Group, has now detailed the specific calculation for schemes to do in order to offer a fair and fully GMP inclusive transfer value.

            The problem for those who have already transferred is that they’ve missed out on the uplifted transfer value. There is now a huge piece of work for scheme to recalculate already transferred pension and forward on any owed pension fund monies. They may need to recalculate the past 28 years transfers.

            learn about : Cashing in a small defined benefit scheme

            Any new request for a cash equivalent transfer value will now include the specified GMP equalisation uplift.

            Client Situation

            £435,000
            • Married
            • Aged 55
            • Outgoing of £1600 per month
            • No loans or mortgage debt
            • Good Health
            • 3 Children but not dependent

            Are you in a similar situation?

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            I received a contact request through this website for a man who had just received his transfer value. He was surprised at the figure and immediately thought he needed to transfer this into his own name so it was ‘safe’.

            After speaking to him at length, it became apparent that his main objective was to pass any unused funds onto his wife and children on his death.

            This was his only and main pension income and he planned to work for another 10 years. His thought process was that if he died early, his estate would lose the value of the transferable fund. Only his wife would benefit from the 50% spouses pension meaning she would receive half the income he was on, on his death.

            His pension was forecast to provide him £17,450 at age 65, and together with his wifes £5,200 NHS pension income, this was more than enough to cover his forecasted £16,000 per annum outgoing. Two years after he retired he would also receive a full state pension, increasing his guaranteed income further.

            He didn’t have any investment experience or indeed need any more income or flexibility in retirement, his main concern was just to pass some funds onto his children as he had no savings.

            Now, one thing I reiterate to people who have this thought process is that pensions are primarily there to ensure you and/or your spouse/partner have enough income in retirement. Anything that left is a bonus. It shouldn’t be the main driver to pass money on when the pension is an absolute need for you whilst you’re alive.

            I brought to his attention that if I could offer a solution where he could keep his guaranteed income, together with providing a cash lump sum to his children on death, would this be preferable.

            He hadn’t thought about other possible solutions to passing money on but after a further discussion, I suggested a Whole of Life plan. Whole of life plans are a life cover policy that provides protection for as long as you live, whether this be to 65 or 95.

            For a monthly premium which was affordable to him and one that was guaranteed not to increase, he was to meet the objective of passing some funds onto his estate without putting at risk his own retirement lifestyle.

            Don’t get me wrong, I have recommended clients transfer away from schemes to pass funds onto their estate in many other instances, but there have been other overriding factors which deemed it to be in their best interest in their personal situation.

            The advice you receive is personal to you and will be based on your circumstances and objectives. I always have your best interests at heart and if there is a way I can help you meet your objectives without giving up your pension, i’ll always discuss this with you first.

            Learn about: What affects Defined Benefit transfer Values?

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            © 2021 The Pension Transfer Specialist Athur Brown Wealth Management are Authorised & Regulated by the Financial Conduct Authority – Number 825843.

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