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Since pension freedoms came into force in April 2015, it has been estimated that over 200,000 defined benefit (DB) pension scheme members have elected to transfer their benefits to a defined contribution (DC) arrangement to take advantage of the flexibilities now allowed. Barring any regulatory intervention, we do not see the demand for transfers from members falling away materially.
"Barring any regulatory intervention, we do not see the demand for transfers from members falling away materially."
Members with transfer values in excess of £30,000, have to take advice from a regulated independent financial adviser (IFA) with the necessary FCA permissions before they can transfer. The trustees of the DB scheme must also obtain confirmation that the member has taken this advice before paying any transfer value. It is important to note that in practice, many DC providers are unwilling to accept unadvised transfers so many members with transfer values less than £30,000, also have to take advice before transferring.
Despite these requirements, there have been some very public cases where members have received bad advice on whether to transfer in the first place, or which DC product to transfer to. Some of the fees paid by the members for this advice, (usually via a deduction from the transfer value and ongoing management charges) have been eye-wateringly high. The FCA’s review of the advice provided by some of the smaller firms of IFAs, has also highlighted significant shortcomings, although the larger IFA firms specialising in DB to DC transfer advice were not included in this.
How you can help members with their transfer options
Transferring from a DB scheme is a major decision for members and there are many factors that should be taken into account in deciding whether it is the right thing to do or not. We believe that scheme sponsors and trustees, should seriously consider putting in place a support structure that enables members to investigate their options and receive appropriate advice. There are several reasons for this:
- The numbers of IFAs with the necessary DB to DC transfer permissions has fallen over recent years. This is due to increasing regulation and issues with obtaining professional indemnity cover; it is increasingly difficult for members to find a suitable IFA to advise them.
- To ensure members are better informed and make better decisions with better outcomes.
- To ensure members are not paying excessive fees for the advice they receive.
- Every transfer paid, reduces the risk remaining in the scheme and in most cases, will result in an improvement in funding levels.
- To protect the sponsor against hard earned deficit contributions being paid out in inappropriate transfers.
This support structure can be anywhere between:
- Publicising links to a trusted IFA partner which the member can use at their expense.
- Setting up a fully streamlined support service, with paid-for access to a trusted IFA (or panel of IFAs), online member support and modelling tools and full integration with the administration system and the FCA mandated analysis required for the IFA to be able to advise the member.
How we can help you with the transfer process
We can help sponsors and trustees on all aspects of setting up a support structure for members.
We work closely with the larger IFA firms who specialise in DB to DC transfer advice and perform regular due diligence on them. Our BWebstream portal and Me2 online tool allow members to find out more details of their benefits, the options available to them and to model the impact of transferring from the scheme. We can also integrate our tools for supplying the IFA with the FCA required numerical analysis they need to advise the member.