This is a difficult area, particularly when it comes to advisers assessing the strength of the employer covenant.
Behavioural issues
This is an area we must not forget in the transfer transaction. When you explain to a client that his options are, for example, £40,000 per annum for life or a transfer value of £1.3m, what do you think the client will hear? If you were talking to non-dependent children of an ageing parent – what do you think they hear?
So all well and good? Well, no. With the advent of the pension freedoms legislation one of the big issues was the requirement to take financial advice for cash equivalent transfer values over £30,000.
Pension transfers have always been a controversial area from an advice perspective with regard to any residual liability there might be, particularly ‘the insistent client’ – the client who is advised not to transfer by an adviser but who does so anyway.
Unfortunately, the regulator and the Ombudsman have found against advisers even in the case of insistent clients and as advisers have told me in no uncertain terms, this is reflected in their PI insurance premiums.
So, will advisers advise on DB transfers with this potential liability? If the recent figures showing a record number of advisers taking and passing the relevant examinations are anything to go by, the answer is a resounding ‘yes’.
The level of the fees and the demand for a one-off transaction rather than a full financial plan have also played their part in the discussions – some advisers are pricing to not necessarily have to do the business but as a result clients are feeling that they are paying over the odds.
Let us look at an example; recently I presented at two pension seminars and DB transfers came up in both.
| Key points |
Transfers from DB schemes are often not the right thing to do, and on the adviser side there is the fear of liability from insistent clients. The TVAS aims to provide the yield that would be needed to buy an annuity to match the defined benefit to be purchased at the normal retirement date of the scheme. The level of the fees and the demand for a one-off transaction rather than a full financial plan have also played their part in the discussions. |
In the first one there was some vocal discussion from a number of those present (predominantly from those advisers not doing such transfers) concerning liability, PI cover, retrospective liability and fees.
The next day we had the absolute opposite – several of the advisers in the room were specialists in DB transfers and happy to do such business with an understanding of the other issues involved.
