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The pension transfer conundrum

I’d like to talk about pension transfers, particularly, how advisers and planners can take advantage of this market whilst giving the good quality advice and staying on the right side of the regulator.

I spend a considerable amount of time with advisers, so have both sympathy and empathy for those of you giving pension transfer advice. The press is regularly pushing the benefits of final salary transfers; headlines such as If I had a final salary pension, I’d cash it in.” But, we all know it isn’t that easy and advisers are facing several headwinds:

The press:

Whilst the deluge of articles promoting the benefits of pension transfers continues, we see increasing numbers of insistent clients, who put greater store in a journalist’s word than that of an adviser.


As you know, Cash Equivalent Transfer Values usually come with a three-month window. But when additional information takes, in some cases, a further eight weeks, that doesn’t leave you long to formulate your advice, put it through your internal due diligence procedures, present your advice, and then process the transfer. Managing client expectations, especially if transfer values start to fall, will be an increasing challenge in 2017. We have even heard of clients making complaints against advisers who were unable to transfer their DB pension in time.

The insistent client:

“I want to transfer my pension and don’t care what you say”. How do you as an adviser deal with situations such as this? Do you facilitate a transfer you know isn’t in the client’s best interests, or decline to deal, knowing full well they will go elsewhere and find someone who will?

Regulatory issues:

This is clearly an area that the FCA is watching carefully. I’ve seen predictions of another pension review in 2018; will that happen? I don’t know. But I’d urge advisers to make damn sure they pay heed to what they regulator is saying right now. Their recent piece: ‘Advising on pension transfers – our expectations’ , was fascinating. I’d endorse everything it says and recommend all advisers active in the pension transfer market read it carefully.

My advice

It’s never been more important for advisers and planners to implement a pension transfer assessment strategy which protects their business, delivers great advice and allows them to take advantage of what is undeniably a huge opportunity.

I would start with a seven-point plan:

  1. Be very wary before taking on any insistent client business. In fact, I’d go even further and recommend not doing it. Why would you transact something you know isn’t in the client’s best interests?

  2. If I were not managing the underlying investment I would think twice about engaging with the client

  3. Manage client expectations at every stage of the process. Being on the end of a complaint because the trustees took too long to provide information and the in the meantime the CETV has dropped is not a nice place to be

  4. Use interactive cash-flow modelling with clients so they can understand the effect different assumptions could have on their long term financial security. Would your clients know how much their purchasing power would be reduced at age 80 if inflation is 1% higher per annum than expected? Can they afford the uncertainty?

  5. Actively and enthusiastically open your files to review before the business is transacted. The benefits of a double and even triple check are huge, even if we don’t always feel that way at the time of receiving the feedback!

  6. Build a charging structure where your and your clients interests are aligned. For me, that means avoiding charging structures where your income is contingent on the client transferring. Clients should pay for your advice, not a recommendation to transfer.

  7. Engage with PI insurers and your compliance support. Their input into helping you design compliant and robust processes and charging structures will be invaluable. Indeed, talking to PI insurers is a great way to get really valuable market view.

I firmly believe this is an opportunity where advisers can, and do, add huge value to clients. Helping them avoid mistakes and take advantage of previously unavailable opportunities. It just needs to be done in the right way.

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