There has been a noticeable slowing down of the number of Defined Benefit (DB) Transfer Schemes that are taking place. There are a number of factors that is behind the decline.
Jeff Lewis, director at independent financial advisors RobMac in Edinburgh says “Transfer Values continue to remain quite high and unless Interest rates and Gilt yields rise, they are like to remain the same. So, while transfers are still an attractive proposition there are still a number of reasons why there are less schemes being transferred.”
“One of the reasons is that the Financial Conduct Authority (FCA) have introduced a new procedure that provides a comparison between an existing Defined Benefit Pension Scheme and transferring to a new Defined Contribution Scheme. They’ve done this to help illustrate in monetary terms what they are actually giving up by transferring .”
“We’ve found that when clients come to talk to us about transferring out of the existing scheme because of the attractive transfer values, that further discussion often brings a better understanding of their current position. In that way we can reach a decision that is best for them and since the initial rush of transfers when the legislation was introduced, we’re seeing less clients taking up the option to transfer due to the not insignificant benefit in having an index-linked income in retirement.”
“There is another industry related reason for the decline in transfers which is to do with the number of IFAs prepared to offer advice on the suitability of transferring out of an existing DB. Insurers who provide Professional Indemnity (PI) cover to IFAs have significantly increased their premiums. I think it is a case of the insurers being nervous about potential cases of “mis-selling” further down the line. The bottom line is that IFAs are having to pay more for their PI cover and therefore many are limiting their liability by either not advising on transfers or restricting the numbers that they recommend.”
“So, in summary, there are a number of non-related factors that are impacting on the volume of transfers taking place and we don’t see a change to that pattern emerging any time soon.”
If you would like to discuss your pension position with Jeff or any one of RobMac’s consultants, please click here to arrange an appointment: https://www.robmac.co.uk/book-an-appointment/
