Potential DB transfer: initial information for client??

Hi All,

We want to provide our client with some initial information on potential DB transfer. We've got all the info from the DB scheme but before we request a TVAS report and send it to our outsourced pension transfer specialist, the client wants to know our initial thought (not advice of course) and perhaps some generic literature. The client is 45 so quite far from his retirement age hence it's really difficult judge his transfer value Vs projected income without TVAS & calculating the critical yield.

I sat AF7 a couple of weeks ago so quite new to DB transfers so any advice would be appreciated.

Many thanks

Anna

Comments

  • Does he have any other sources of secure income for retirement? If not, do not transfer.
  • Have a look at Standard Life - their 1825 arm produced a triage process that we've adapted and it's really good to establish whether it's right to take things any further. Your local consultant should be able to source this for you.
  • CaroCaro Member
    The Standard Life process is really good, we used that as a starting point for our DB review process. 

    Before we engage with a client and as part of the triage, we do a simple stress test just using an excel spreadsheet to establish the sustainability of the pension if it is transferred and invested compared to the income received if the benefits were retained. We make assumptions for inflation in it naturally with the investment returns on the transfer at 0%, 2% and 3%. 

    If the pot is running out in the early years of retirement, we generally explain to the client that its probably unlikely a transfer is in their best interest and if we proceeded to a full review, this is what our advice would be for which there would be a fee. 

    This is obviously a fairly simple view of it and every client will have different circumstances but we find this is a really good starter for 10. 

    I also agree with @arongunningham though, if he doesn't have anything else, I don't think we would likely recommended a transfer. 


  • AnnaAnna Member

    Thank you everyone, all very useful.

    While dealing with this case, I found a good guide and checklist on Scottish Widows website which I think is quite good.

    http://www.scottishwidows.co.uk/changehub/defined-benefit/

  • NathNath Member
    Just sat in on a Pru Webinar with Rory Percival and he says the FCA are particularly looking at cases where clients are transferring pre 55.  Their view appears to by 'why now?'.  He believes the FCA will look unfavourably on any cases pre 55 where the basis is on the transfer value being a good multiple etc (rightly/wrongly).  It will become clear from the client objectives whether these objectives can be best met by transferring or not.  As Aron says, how does this fit in with the bigger picture/other assets for retirement etc.  This will often give you the answer before you even have to analyse the scheme itself.
  • richallumrichallum Administrator
    Two simple questions often help at the start of what could be a very short process.

    1. The regulator's position is that transferring is unsuitable for most people. Why are you different than most people?
    2. This is an irrevocable decision. Why now when you can wait and do it in the future?

    Paraplanner. F1, Apple, Nutella, ice cream. No trite motivational quotes. Turning a bit northern. 

  • NathanNathan Member
    Ask the client why they want to transfer the risk from the scheme to themselves?

    i was reminded the other day that the S&P 500 dropped by 50% a few years ago and whilst I recognise that is not a diversified portfolio its food for thought.

    if the clients wants to do it as they believe they can achieve a better income than what is on offer from the scheme, i’d Walk away. 

    Wol can cover off death benefits and whilst most will say I don’t want to pay for it, ask yourself what the annual cost of running the transferred fund will be, £100k transfer value at 2% is £2,000.  Which, depending on age, could probably be covered. You have to also think, how much of the transfer value the client may have left on death if death benefits is the reason.


  • @Nathan have you got a link to that prudential webinar? 
    Benjamin Fabi 
  • @Caro said:
    The Standard Life process is really good, we used that as a starting point for our DB review process. 

    Before we engage with a client and as part of the triage, we do a simple stress test just using an excel spreadsheet to establish the sustainability of the pension if it is transferred and invested compared to the income received if the benefits were retained. We make assumptions for inflation in it naturally with the investment returns on the transfer at 0%, 2% and 3%. 

    If the pot is running out in the early years of retirement, we generally explain to the client that its probably unlikely a transfer is in their best interest and if we proceeded to a full review, this is what our advice would be for which there would be a fee. 

    This is obviously a fairly simple view of it and every client will have different circumstances but we find this is a really good starter for 10. 

    I also agree with @arongunningham though, if he doesn't have anything else, I don't think we would likely recommended a transfer. 

    Hi @Caro

    Did you feel that the Standard Life 'fair' transfer multiples were fair? Or did you come up with your own?

  • CaroCaro Member

    Hi

    'Fair' is a very subjective term!

    We used the triage process to determine whether there was value for the client going down the full review and advice route, for which there would be a fee, not for deciding whether they should transfer or not. High transfer multiples have a danger of creating transfer bias and so we would look at needs, understanding and sustainability to avoid being swayed by multiples, Standard Life's or otherwise.

    If the client went for the advice option, we always do a full Financial Plan taking into account everything, not just the DB scheme, and so the multiples were not really a factor as we used cashflow and TVAS to establish value.

    We don't do any of that now though, obviously, and my understanding is that multiples, along with any other client specific information, should not be included in any triage process at all now.

    Our triage process now comprises giving the client generic information on the pros and cons of transferring. If they want to take advice, we charge a fee for it and only ever do it as part of a financial plan and so the multiples are not ever going to be a deciding factor.

    That probably doesn't answer your question though!

  • I remember reading the Standard Life blog last year where they were talking about the whole triage process and introducing their 'fair' multiples. At the time, I thought that surely as someone is coming up with what is fair, then this blurs the lines a little and you could be seen to be tripping over into advice.

    We're the same as you, 3 generic documents for the client to read, with a questionnaire which checks their understanding and allows them to select whether to move on in the advice process or not.

  • The rules on triage that came out of FCA PS 18/20 effectively killed that SL process (the document is still available in this thread). It was designed in a world where a recommendation to retain DB wasn't a personal recommendation. Looking at it now, it's impossible to use it without breaching the rules on giving advice.

    Benjamin Fabi 
  • The PFS Gold standard document is very useful and OMW produced a very good advantages vs disadvantages document of the DB transfer decision ideal for triage.

  • AdminAdmin Administrator

    Hi - a Standard Life pdf was shared on this thread. They've been in touch to ask for it's removal as it's no longer in date. Thanks

Sign In or Register to comment.