DB Transfer - Active Member Considerations
Rebecca_Tuck
Member
Hi all, and happy new year!
Has anyone had any dealings with a client wishing to transfer out of a DB scheme when they're still an active member?
Everything I've dealt with to date has been with deferred members, but I'm assuming there would be even more considerations for those who are still contributing/accruing benefits etc?
Essentially, we've had someone get in touch as there's currently a consultation in place for their DB scheme and the member isn't happy about the proposals (increased contributions) as the benefits are on a "3 best years of 10" basis. The client recently dropped down their hours significantly, so they don't see the advantage of paying more when they aren't going to get anything extra back. I've had a few thoughts so far that I'll need to ask the scheme (listed below) in addition to the usual questions, but if anyone has experience with this / can offer some more guidance it would be very much appreciated!
- Given that a consultation is in place, will this impact the availability of a transfer value / actual transfer?
- When is the consultation expected to conclude? and when will the final decision be issued to members?
- If the client does transfer out, how would any new benefits be accrued? (i.e. details of the employer DC scheme for non-DB members)
My gut feel is that they shouldn't panic - there's no point making a rash decision on something that is still only a proposal - and that their benefits are still damn good ones even if the proposed increase in contributions (1.5%!) goes ahead, but I'd appreciate insight from anyone who's dealt with something along these lines before.
Ta muchly!
Becca
Has anyone had any dealings with a client wishing to transfer out of a DB scheme when they're still an active member?
Everything I've dealt with to date has been with deferred members, but I'm assuming there would be even more considerations for those who are still contributing/accruing benefits etc?
Essentially, we've had someone get in touch as there's currently a consultation in place for their DB scheme and the member isn't happy about the proposals (increased contributions) as the benefits are on a "3 best years of 10" basis. The client recently dropped down their hours significantly, so they don't see the advantage of paying more when they aren't going to get anything extra back. I've had a few thoughts so far that I'll need to ask the scheme (listed below) in addition to the usual questions, but if anyone has experience with this / can offer some more guidance it would be very much appreciated!
- Given that a consultation is in place, will this impact the availability of a transfer value / actual transfer?
- When is the consultation expected to conclude? and when will the final decision be issued to members?
- If the client does transfer out, how would any new benefits be accrued? (i.e. details of the employer DC scheme for non-DB members)
My gut feel is that they shouldn't panic - there's no point making a rash decision on something that is still only a proposal - and that their benefits are still damn good ones even if the proposed increase in contributions (1.5%!) goes ahead, but I'd appreciate insight from anyone who's dealt with something along these lines before.
Ta muchly!
Becca
Comments
I have seen, once, a sound reason for moving out of an active scheme due to the best 3 out of 10-year calculation - but this was because the member had a significant chnage in their role which meant that over time their projected pension would actually get drop significantly if they remained in the DB scheme - but they also had the option of joining the alternative DC scheme as well which helped.
Given that your client has only recently changed their hours I suspect that this is not yet the case.
Whilst transferring from a DB scheme for a deferred member requires very complex and careful consideration, opting out (and essentially taking a voluntary pay cut) is a whole different game - one to avoid if at all possible as highly unlikely to be in their best interests.
Stay put for now. Await the consultation outcome (and even then wait until any changes are actually implemented).
Thanks for the reply. For this client, if they stay in the scheme to NRA with their current reduced hours (25% of original) then they will lose 2 of their current 3 best years from the 10, which does have a large impact on their potential benefits, albeit one that doesn't really come into play until a good 7 years down the line.
I'm in agreement with you over the likely best decision here, but want to make sure that I've got all bases covered when it comes to what I need to ask the scheme with regards to the available options at this time. Essentially, I'd like to be able to properly explain exactly why no, given how antsy the client is about staying put. I think info on the alternatives (including the transfer value and the DC info) are needed to help give the full picture, but keen to hear if there are any other questions I should be asking of the scheme before going back to the client.
Thanks again,
Becca
In order to understand a transfer out, you need to know what you are transferring out from.
If the answer to the first point is 'No' then until the consultation is finished there seems to me little point in gathering information from the scheme, other than possibly gaining written confirmation of exactly how the pensionable salary is calculated and how this is impacted by the reduced hours for the client. If, in 7 years time there is a significant drop in future pension due to losing some of the best years then it is in about 5 to 6 years time when an opt-out should be considered.
I think you are on the right path with regards to 'educating' the client. sometimes our role is to protect the client from themselves!