Personal Pension  

GAR valuations set for overhaul

GAR valuations set for overhaul

The Pension Schemes Act 2015 is set to be amended to make sure providers treat the value of safeguarded benefits, including those with guaranteed annuity rates (GAR), as equal to the actual transfer payment.

A statement from the Department for Work & Pensions published last week outlined its response to the call for evidence on the valuation of pensions with a GAR for the purposes of the advice safeguard.

The intention is that the regulatory changes will be laid before Parliament later this month and come into force on 6 April.

Article continues after advert

Gareth Evans, head of corporate affairs at Royal London, said the change to the GAR valuation process to make the £30,000 advice threshold equal to the transfer payment was welcome as this would make it easier for consumers to understand when independent financial advice was required.

However, he said an opportunity had been lost to help those customers with smaller pension pots with GAR benefits, who would still be required to get financial advice.

Mr Evans said: “The requirement for customers with GARs benefits to receive personalised illustrations that give an indication of what the GAR benefits may provide and the strengthening of the risk warnings will help to improve understanding of the value of the benefits they have.

“But they will still face the frustration and difficulties that many consumers experience in obtaining the necessary advice before they can access their savings.”

Royal London previously called for those customers with smaller pension pots, for example £20,000 to £40,000, to have a conversation with Pension Wise before being allowed to transfer or flexibly access these benefits.

Mr Evans said: “We believe this would help to address the concerns around the perceived high cost of advice in relation to the size of the customers pension pot.

“Hopefully we will see changes announced soon in response to the Financial Advice Market Review that will provide wider solutions for more consumers to have cost-effective access to impartial advice.”

The amended valuation approach will apply to both personal and occupational pension schemes, in respect of all types of safeguarded benefits.

The Government plans to amend regulations so that ceding schemes are required to send a personalised risk warning to members considering transferring or surrendering their GAR benefits, with further consultation ahead of changes coming this summer.

The Government agreed it was crucial that steps were made to ensure members understood and appreciated the benefits conferred by a GAR before making a decision to surrender these benefits.

Adviser view

Matthew Harris, owner and IFA at Dalbeath Financial Planning, said: “This will simplify things, but what we really need is a removal of the requirement for financial advice to come from an IFA with FCA Pension Transfer Specialist permissions regarding occupational pension schemes with a guaranteed annuity rate

“Unlike final salary pensions, these GARs are not hard to analyse, and requiring consumers to pay the very high fees of a PTS is not reasonable. That’s the main problem consumers are having with GARs at the moment, in my experience, not the valuation issue.”