DB Transfers – Trustees should insist on advice now!
In his response to the consultation on Freedom and Choice in Pensions, George Osborne said that transfers from Defined Benefit schemes to Defined Contribution schemes would continue to be permitted. However he said that there would be a new requirement for members to take advice.
Under present legislation a member requesting a cash equivalent transfer value can expect to see it paid by the trustees within 3 months. Unless the scheme is significantly underfunded and concerned about going into the Pension Protection Fund (PPF) there is very little they can do to delay the transfer. This leads to the bizarre scenario where the Pensions Ombudsman is currently considering a number of complaints in relation to Pension Liberation transfers: some complaining that their transfers have been delayed, others complaining that should never have happened!
Regulated financial advisers who wish to advise on pension transfers must have the ‘permitted activity’ from the FCA, and must comply with a number of rules in advising clients. One of the most prescribed stages is the provision of a transfer value analysis with set assumptions regarding inflation and annuity rates and a requirement to include the charges of the proposed new scheme. Yet there is no requirement for unregulated ‘advisers’ and probably the worst of these are those operating offshore and arranging transfers to QROPS.
We recently came across a couple who had emigrated to Dubai where they were advised to transfer their respective defined benefit pensions into QROPS. No analysis of the benefits was carried out and the transfer was waved through by the scheme administrators. The couple has now returned to the UK and we discovered that the Dubai outfit had relieved them of more than £20,000 each (about 12% of their transfer values) when setting up the plans. They did not feel that they could complain to the ‘adviser’ in Dubai or its London office, nor could they complain to the scheme administrators for allowing the transfers to proceed.
As a scheme trustee I think that it must now make sense to require members to take advice before transferring. April 2015 will not see any change to defined benefit pension schemes, all it will see is a change to the options available under defined contribution schemes. If the decision will not be easy after April, why should it be easy before then? If as a trustee you are worried that people will transfer for the wrong reasons after April you must be worried now that they will transfer for the wrong reasons before April!
A trustee has a duty of care to all beneficiaries. Fulfilling that duty ahead of the change in legislation must be the right thing to do!
Please send any comments to David Trenner, technical director at Intelligent Pensions. firstname.lastname@example.org