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Worrying rise in ‘insistent’ pension transfer clients

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Pensioners are increasingly demanding to switch out of defined benefit (DB) schemes, even when it is against the recommendation of their adviser.

Nearly half (47%) of advisers have seen a rise in ‘insistent’ DB pension transfer clients over the past year, according to research from pension specialist and SIPP provider Momentum Pensions.

Advisers are increasingly concerned about future liabilities from advice that is contested, with nearly two out of three (63%) advisers saying it is their biggest concern.

The regulator, the Financial Conduct Authority (FCA) has raised DB transfers as a significant issue, warning that fewer than half the transfer cases met its suitability criteria. It said that advice has to be ‘holistic’ looking at clients’ overall circumstances and bespoke for investment, product and benefit solutions.

The research also showed that 58% of advisers would support legislation prescribing the investment vehicles into which DB funds can be transferred. Just over half of advisers said their biggest fear is that clients are surrendering a guaranteed income for life, while 48% worry that customers do not understand the investment risks of moving out of the schemes.

John McCreadie, head of sales (UK) at Momentum Pensions, said: “There is clearly strong demand for DB transfers with The Pensions Regulator estimating around 80,000 transfers a year with up to £50bn moved over two years.

“It is a real issue for advisers faced by clients who are insistent on moving to benefit from relatively high transfer values and the perceived increased flexibility of SIPPs and DC schemes. DB schemes pensions offer valuable benefits and anyone transferring should be looking for choice and value from their investment selection as well as full flexibility and a range of ways of accessing the solution.”

Advisers are also concerned on the disconnect between the FCA and The Pensions Regulator on best practice with 42% worried about a rise in the cost of Professional Indemnity insurance. However, around 60% said they were concerned about the potential impact on their business if transfers dry up.

If you’re looking to transfer…

Low interest rates have made the lump sum you receive on a DB pension transfer look very attractive in some cases. However, that lump sum has to be invested to create an income and low interest rates also make that more difficult to achieve. The stock market is one option, but retirees must then accept that there is a risk to their capital.

The worst possible option is to take it out of a DB scheme and put it in a cash account on a long-term basis. It means your savings won’t be keeping pace with inflation and you won’t have a guaranteed income either.

You have spent a long time building your retirement income, and it needs to last you a long time as well. It is really worth speaking to a financial adviser, who can guide you through your options and then listen to their advice.

And finally, remember that there are a lot of scammers out there, trying to get their paws on your pension pot. Do not engage with anyone who calls you unsolicited to discuss your options.

See’s The case for and against transferring out of your final salary pension for more information.

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