The key point when considering a transfer to boost income is the need of the client, says Jamie Jenkins, head of pensions strategy at Standard Life.
If the existing pension does not offer flexible income options and that is a key need for the client then Mr Jenkins says a transfer could be considered.
Also if the existing pension does not allow for inheritability on death and leaving money for loved ones is a key need, then again Mr Jenkins argues a transfer could be considered.
He says: “Offset against this is the need to make sure that the client isn’t giving up extra benefits such as guaranteed income or enhanced tax-free cash in doing so.
“Anyone transferring out of a defined benefit - often called final salary - scheme will need to get advice from a suitably qualified financial adviser, unless their transfer is worth less than £30,000.”
Under new FCA rules currently subject to consultation, all transfers from ‘safeguarded’ benefits to flexible funds above this value need to be advised. For transfers from final salary schemes, this advice must be undertaken or overseen by a qualified pension transfer specialist. W
Assessing the suitability of a transfer can be a complex area, Mr Jenkins points out. It depends on a range of factors such as:
• the age of the customer;
• their state of health;
• the type of pension they are currently in;
• whether their current pension provides guaranteed benefits;
• the financial needs of the customer;
• the need for flexible income in retirement;
• the desire to leave money to the family; and
• the future investment performance of the proposed investment strategy for the new pension.
He says: “Each client should really be assessed individually to ensure that the final retirement solution for them fully meets their needs.”
When it might be right to transfer
Alistair McQueen, head of policy and compliance business protection at Aviva, says another common attraction for transferring pensions is to consolidate various small pensions amassed over a working life, into one pension pot at retirement.
The administrative attraction of managing one pot as against many is understandable, and a bigger pot could, in some circumstances, generate a bigger retirement income, Mr McQueen notes.
Without careful consideration, however, Mr McQueen says it is possible that this administrative and potential financial attraction could be outweighed by the loss of benefits incurred when moving from one pension to another.
He says: “Careful consideration is needed prior to taking action. Once a client transfers, they will have no further rights under their old pension.”
According to Mr McQueen the following steps should be considered:
• A full review of the features and benefits of both the ceding and receiving pension, against the client’s needs.
• Consideration of any benefits that will be lost by transferring from the ceding pension.
• Consideration if any loss of benefits will be outweighed by other benefits in the receiving pension.