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.
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.
