Defined Benefit (DB) pension transfer advice
A Defined Benefit (DB) or Final Salary (FS) pension schemes provide a source of secure, indexed-linked, lifetime income in retirement.
If your Cash Equivalent Transfer Value (CETV) is over £30,000, you are required under UK law to obtain UK regulated advice; indeed, the Trustees of the DB scheme can’t transfer any value of over £30,000 unless this has been signed off by a UK regulated financial adviser with the required specialisms.
Square Mile Asset Management has all the necessary specialisms and regulatory requirements to provide full transfer advice in this complex area. We can provide advice to UK and non-UK residents and have solutions for US tax resident members.
It is widely accepted that in most cases, it will remain in the best interests of the member to retain their DB pension scheme for the secure benefits it will provide them in retirement; indeed, this will always be our starting point.
Many financial advisors will rightly advise the member not to transfer should it be clear on contemporary evidence, that the transfer is not in their best interests. In many of these cases they will then decline to proceed with the transfer even if you wish to disregard this advice and transfer.
If the pension transfer advice is to remain in the DB scheme, our policy is that we will accept an ‘Insistent Client’ pension transfer request on the assumption that the Financial Conduct Authority’s (FCA) guidance is followed in full.
An ‘insistent client’ is a client who:
- receives a personal recommendation from a FCA-regulated firm
- decides to enter into a transaction which is different from that recommended by the firm in the personal recommendation, and
- wishes the firm to facilitate that transaction
Under the insistent client scenario, we must ensure that you fully understand the risks and consequences of taking this course of action. If this isn’t evidenced, then the insistent client pension transfer request will not be permitted.
Several factors will influence a transfer decision, including personal circumstances, attitude to transfer and investment risk and the generosity of the cash transfer value offered by the Scheme.
We have outlined below some common reasons why members of DB pension schemes may choose to either remain or transfer out of the scheme.
Reasons for remaining in the Defined Benefit (DB) scheme
- The Defined Benefit (DB) scheme pension forms a large proportion of retirement provision
- Secure income available from the scheme meets income needs in retirement
- Uncomfortable with investment risk arising from a transfer
- Comfortable with the existing secure income structure (pension increases and dependant pension)
- No experience of making investment decisions
- No desire to retire early
- Income available post-transfer is likely to be unsustainable
- No need for immediate tax-free cash or income
- Uncomfortable with change
- Low transfer value relative to secure income offered
- Younger spouse and dependants
- Additional scheme membership benefits
- Initial and ongoing charge and fees
Reasons for transferring out
- Ill health and low life expectancy issues
- Can benefit from enhanced annuity rates upon transfer
- Member is independently wealthy and has alternative income streams to call on
- Increased flexibility on how to structure retirement benefits
- Member is a professional investor and requires flexibility on how to invest retirement funds
- Enables early retirement
- Potential for a higher tax-free cash amount
- Potential for a higher pension/retirement income, especially in the early years of retirement
- More suitable death benefits
- High transfer value relative to secure income offered
- Inheritance Tax planning
- No dependants
The above are merely examples and whilst we have suggested something could be a reason to transfer it may be the opposite based on your own individual circumstances and could be a reason to remain.
A DB pension transfer is irreversible once implemented, and it is imperative that you seek professional, independent advice in this complex area. Please contact us for further information on our full DB pension transfer advice service.