Final Salary Pension Transfer Advice


Final Salary Pension Transfer Advice Details & Cost

The Financial Conduct Authority (FCA) position regarding final salary pension transfer advice is set out below:


COBS 19.1.6


When advising a retail client who is, or is eligible to be, a member of a defined benefits occupational pension scheme or other scheme with safeguarded benefits whether to transfer, convert or opt-out, a firm should start by assuming that a transfer, conversion or opt-out will not be suitable. A firm should only then consider a transfer, conversion or opt-out to be suitable if it can clearly demonstrate, on contemporary evidence, that the transfer, conversion or opt-out is in the client’s best interests.


Until pensions freedoms were introduced, the conventional wisdom was that unless there were special circumstances, it was normally in the member’s best interests to remain a member of a defined benefit pension scheme rather than transfer to a money purchase pension arrangement.


With the introduction of pension freedoms and the current low rates of interest, inflation and investment returns increasing the size of Cash Equivalent Transfer Values (CETV’s) being offered, it has increased the demand for specialist defined benefit pension transfer advice.


However, with the shadow of the pension mis-selling scandal of the mid/late 1990s still hanging over pension transfers, everyone involved with defined benefit pension transfer advice (especially the regulator) takes it very seriously and will always err on the side of caution.



Transfer Value Analysis (TVA) Reports

If a member has safeguarded benefits of more than £30,000 they must seek advice from a qualified pension transfer specialist if they want to transfer to a money purchase pension arrangement.


The FCA sets out detailed requirements which must be followed and advisers must compare the benefits under the defined benefits scheme with the benefits payable after transfer. All Transfer Value Analysis Reports must now include a Transfer Value Comparator (TVC) – this is a new FCA requirement.


The Transfer Value Comparator gives a non personalised comparison between the scheme benefits and the proposed cost to replace these benefits with an insurer.


The main focus of any TVA report should be to present the scheme member with relevant information so they can make an informed decision.



Why is a TVA Report Important?

Apart from the FCA required TVC, the Transfer Value Analysis (TVA) Report provides additional comparison information to assist in the decision making process and provides another level of “checking” the benefits versus CETV offer.



Pension administration is prone to data mistakes!

It is an inherent feature of pension schemes with long histories which have undergone multiple changes in administrator and/or IT systems.


We believe it is possible that many consumer pension records could potentially have data errors that would make a significant difference to the CETV offer generated.


With the increased volumes of pension transfer requests, it is possible that pensions administration staff do not have the experience or necessary skills to identify these mistakes.



Using a TVC in conjunction with a back of the envelope calculations such as “CETV/Pension = Pension multiple” do not reflect the Minimum Benefits Test procedures that contracted out schemes need to apply nor does it identify any step pension entitlement requirements that may apply from State Pension Age for contracted out scheme members. 


We use the TVA reports produced by the specialist actuaries at Briggs Murray Actuarial Ltd

After ensuring that the scheme benefits and corresponding CETV are correct the Briggs Murray Actuarial TVA report has an interactive drawdown modeller that allows exploration of the unlimited drawdown/uncrystallised funds pension lump sum (UFPLS) case scenarios and payment patterns available for any size pension transfer. 




Points to Consider When Planning Your Future Retirement Objectives 


Your Income Requirements

Most people naturally want as much income as they can get but it is important to think about your future income requirements and to take account of inflation. You may also need more income in the future to help pay for increased living expenses or if you need to pay for home help or care.


Remember, the more income you take from your pension pot in the early years the less income will be available later in retirement.



How much certainty and/or flexibility do you need?

The need for certainty doesn’t need explaining, especially if you don’t want to take any risks, but the need for flexibility may not be so obvious.


You might need some flexibility for the following reasons:


  • In case your income requirements change over time
  • To benefit from any increases in equities or long-term interest rates
  • In the event your health deteriorates and you need to pay for additional care
  • If you wish to have flexibility in deciding who will be the beneficiaries of your residual pension funds after your death



Your attitude to risk and capacity for loss

When assessing how much risk to take you should consider not only your attitude to risk but also your capacity for loss. Attitude to risk is an easy concept to grasp and is normally expressed as low risk, medium risk or high risk.


Low Risk – You would ideally like to have most of your investments in cash and fixed interest securities in order to protect the value of your capital.


Medium Risk – Someone who would like to take advantage of equity investment with the prospect of good long-term returns but can accept some short-term volatility which may result in a fall in the value of the investment.


High Risk – You will consider exposure to higher risk investments despite the potential loss of capital.


Your attitude to risk is normally measured as your tolerance to taking investment risk and we have special questionnaires and tools to help assess your risk profile.

Capacity for loss is described as your ability to absorb falls in the value of your investments or income without it causing you adverse financial hardship or emotional strain. 



What will happen after your death?

The focus for retirement income planning should quite rightly be on your income needs and the needs of those directly dependent on you such as your spouse or partner. However, it is only natural to want to leave an inheritance to your wider family if that is possible and does not adversely affect your own personal income position.


Once you have set out your retirement objectives and attitude to risk we can research which product options will give you the best solution. Our specialists will identify the options which meet your objectives and then recommend the solution that is most suitable to your circumstances.



Final Salary Pension Transfer Advice Cost

Our transfer advice fees are:


Up to 3% on the first £500K


Up to 1% on the funds above £500K

All fees are agreed prior to work commencing and are subject to a minimum of £3,000 per DB transfer.


The above fees are if a transfer is advised and completes.


If our advice is not to transfer or you decide not to proceed with the transfer after our advice then there is a fee of £1,000 for the FCA required TVC Report and APTA Suitability Report detailing the decision.