S&W Sessions: The Do’s and Don’ts of Defined Benefit Pension Transfer

  • Date: 10 Apr 2019
  • Time: 09:30 - 10:30
  • Venue: Webinar, hosted via WebEx, join from any location, use the link below

Defined Benefit (DB) transfers have come under increasing scrutiny from the Financial Conduct Authority (“FCA”), primarily due to increased demand following the introduction of pension freedoms, a number of controversies and on-going press coverage surrounding such transfers in recent years. With increased regulation and professional indemnity insurance costs, high quality pension transfer advice can be expensive and hard to find.

This webinar will provide a summary of the current landscape and give you practical options when working with Defined Benefit transfers.

The webinar will touch upon the following;

  • A reminder of the Defined Benefit scheme transfer rules and recent changes
  • Best practice when considering a Defined Benefit scheme transfer
  • Practical challenges and advantages
  • Key takeaways
  • How can we help?

Who should join?

Employers with DB pensions, trustees and administrators, anyone considering a pension transfer or knows someone who might transfer, anyone dealing with employers that have DB pensions, anyone with clients who used to work in banks or large financial services companies, Investment managers, IFAs.


Defined benefit pensions

  • A promise to an income, for life, from a normal retirement age
  • The member can opt to take a tax-free lump sum, at retirement, in exchange for a reduced gross annual income
  • Usually increases once per year
  • May provide a spouse's pension

Money purchase pensions

  • An investment fund
  • 25% can usually be withdrawn as tax-free cash from age 55
  • The residual funds can be used to purchase an annuity, or the funds can remain invested and a flexible income withdrawn
  • Unused funds can be left to a beneficiary, on death

Retaining a defined benefit pension

  • Regular income
  • A spouse's pension
  • No risk of outliving the income
  • No investment risk
  • No complex decisions
  • But no flexibility 
  • No legacy

Transferring a defined benefit pension

  • Variable income
  • More tax-free cash (usually)
  • Ad hoc lump sums
  • Lump sum death benefit
  • Can adjust in ill health
  • But investment risk
  • Cognitive impairment and complex decisions
  • Could outlive income
  • Australia

The rules, 1 October 2018

TVC (transfer value comparator)

APTA (appropriate pension transfer analysis)

  • Intentions for taking benefits
  • Relative risks and benefits
  • ATIR (attitude to investement risk) and understanding of ATIR
  • ATTR (attitude to transfer risk) 
  • ATCOIIR (attitude to certainty of income in retirement)
  • Realistic income needs
  • Alternatives
  • Likelihood of unplanned withdrawals and impact on sustainability
  • Attitude to restrictions

Working with another advisor

  • Same data
  • Loss of guarantees
  • ATTR
  • All costs and charges

Triage (Jan 2019)

Background, landscape and potential scandal

  • 1988: personal responsibility and freedom
  • FSA thematic review
  • 1 million people compensated, £11bn in costs
  • 2015: pension freedoms
  • £30,000 = advice needed
  • FCA consultation
  • Unexpected demand
  • DB multiples (poll)
  • Risk of poor outcomes
  • Complaints
  • FCA policy statement
  • Partial transfers
  • How much should you tell them? A discussion paper for DB plan trustees: Eversheds Sutherland and Royal London (September 2018)

British Steel

  • Initial choice
  • Mis-selling

"It would have been helpful if the trustees had compiled a list of advisers willing and able to take on pensions transfer advice for the BSPS members. Instead, members were referred to Unbiased or the FCA website. The former is not unbiased and the latter is not easy to use, nor does it make clear if the particular firm of advisers deal with DB transfers. It also includes advisers under investigation. The trade unions would have liked to recommend specific advisers but were advised that they would be crossing the line into advice."

Caroline Rookes, CEO of the Money Advice Service until 2017: Independent review of communications and support given to British Steel Pension Scheme members.

Best practice

  • The expert (PTS/ pension transfer specialist) gives the advice
  • Fixed fees, not contingent charging
  • No commission style "risk premium"
  • Work with other IFAs and wealth managers
  • What is the member prepared to give up? For what?
  • No exit penalties (high charges)
  • Strong education/ triage process, neutral language
  • Firm does other things - so has an even bigger incentive to avoid complaints

Key takeaways

  • Read the R&SA/ Eversheds paper
  • Consider partial transfers and the timing of automatic transfer quotes
  • Due diligence on IFAs
  • Speak to S&W


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