Both ‘final salary transfers’ and ‘insistent clients’ are hot topics just now but combining the two topics has many advisers running for the hills or burying their heads in the sand!
Since pension freedom, we have seen a huge increase in demand for final salary pension transfers – fifteen new cases every month compared to just one a month in 2014.
This is perhaps not surprising given the public’s awareness of the new freedoms and some of the opportunities it creates. The current developments and pension problems at Tata Steel and BHS may act as a further catalyst for pension transfer activity as people become concerned whether their final salary promises are in danger of being broken.
Choppy waters
Pension transfers are a complex and potentially contentious area of advice. Unless you are doing transfers on a fairly frequent basis the time, effort and cost can be prohibitive. However, advisers can’t simply ignore pension transfers, even if they aren’t qualified to complete a transfer. To do so would be a breach of TCF and failing to identify and tackle a potential client need. All advisers, therefore, need a process to tackle final salary pension transfers whether in-house or outsourced to someone like ourselves.
We have seen some advisers involved in pension transfers simply doing so on the basis of routinely rejecting the transfer and allowing the client to go ‘insistent’ in the belief this will mitigate them from risk.
This has to be flawed and a dangerous approach for adviser and client – not only are good reasons for transfer often being overlooked but it also feels a less than robust process that could be challenged in future should the wheels come off the member’s retirement plan or their circumstances change. It could also be dangerous if the client’s plans were never realistic and they end up with insufficient income and only the IFA to claim against!
Just looking at the critical yield calculations is no longer enough and a host of ‘soft’ factors must be considered to reach the correct client recommendation. But having done that, what happens when you have rejected a transfer and the client says ‘OK, but I still want to transfer’.
Smooth sailing
Well, this is our approach which is specific to final salary pension transfers.
In the above situation, we believe there is a mismatch in understanding – either we have failed to understand the client objectives or the client has failed to understand our advice.
So, we enter into a discussion with the client and ask them to explain why they want to proceed with the transfer. Where a client can demonstrate a transfer is in their interests, we will change our advice but where a client can’t demonstrate a good reason for transfer, we will not help the client undertake the transfer. As such, we are very happy that we do not have any insistent clients when it comes to final salary transfers.
With the best will in the world, we can never know our client better than they know themselves and entering into post-rejection discussion helps clarify understanding on both sides. Interestingly, in a small number of cases, we have had clients too embarrassed to disclose the full reasons for transfer in the initial fact-find, usually linked to the need to pay off expensive debts, and clearly a potentially good reason to consider a transfer.
With more than five million deferred final salary members and a requirement for anyone with over £30,000 of safeguarded benefits to take specialist financial advice, it is likely most advisers will come across a final salary pension transfer case at some point.
The new pension freedoms have increased awareness and the number of reasons that can justify a transfer and advisers should not be afraid to recommend transfers in the right circumstances. But fair warning, don’t expect the ‘insistent client’ badge to offer perfect adviser protection where you have enabled a client to transfer their final salary pension when it is not in the clients best interests to have done so.
Andrew Pennie is head of pathways at Intelligent Pensions
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