Personal Pension  

DC versus DB: not all pension transfers are created equal


    I began writing this article a few days ago, and shortly after starting it I found myself speaking at the Retirement Money Show in London.

    The last session of the day was a chance for members of the public to pose questions to the expert panel in front of them. Perhaps not surprisingly the first pension question from the audience concerned a defined benefits transfer.

    To paraphrase, the questioner had a number of pension plans, both DB and DC, and he was looking to consolidate them for retirement planning purposes and to take control of the investments.

    He understood that he could transfer his DC pot into a Sipp, but as his DB transfer was valued in excess of £30,000 he would have to take financial advice (at a cost) before transferring it. Why was this?

    The answer from the panel was as expected – transfers from DB schemes are often not the right thing to do, and on the adviser side there is the fear of liability from insistent clients.

    Advisers may, therefore, not accept the business or set costs high enough to try and discourage the business, or to cover any ongoing liability if the client insisted on proceeding with the transfer.

    The transfer conundrum

    Let us start by looking at what the Financial Conduct Authority (FCA) says in its Conduct of Business handbook (COBS 19.1.6G 08/06/2015):

    • When advising a retail client ... whether to transfer ... a firm should start by assuming that a transfer ... will not be suitable. A firm should only then consider a transfer ... if it can clearly demonstrate, on contemporary evidence, that the transfer ... is in the client’s best interests. (COBS 19.1.7G 08/06/2015)

    • When a firm advises a retail client on a pension transfer, it should consider the client’s attitude to risk including, where relevant, in relation to the rate of investment growth that would have to be achieved to replicate the benefits being given up.

    • When giving a personal recommendation about a pension transfer, a firm should clearly inform the retail client about ... the consequent transfer of risk from the defined benefits pension scheme ... to the retail client.

    • Including the extent to which benefits may fall short of replicating those in the defined benefits pension scheme ...

    • In considering whether to make a personal recommendation, a firm should not regard a rate of return which may replicate the benefits being given up from the defined benefits pension scheme or other scheme with safeguarded benefits as sufficient in itself.

    So the starting point is a presumption that such a transfer is not suitable and is unlikely to be in the client’s best interests.

    In my view this is very much a pre-pension freedoms presumption – we now have a retirement regime where there is no requirement to buy a guaranteed income for life and where spending the pension money is a valid option.


    Please answer the six multiple choice questions below in order to bank your CPD. Multiple attempts are available until all questions are correctly answered.

    1. If a DB transfer is valued at more than £30,000, the client has to seek advice, true or false?

    2. Which of the following is described as a risk of pension transfer by the FCA?

    3. Which of the following is a drawback of taking the DB benefits rather than transferring them?

    4. The regulator and ombudsman have found against advisers with insistent clients, true or false?

    5. Why does it appear that many more advisers will do DB transfers?

    6. Under what circumstances should you not worry about differentiating between DB schemes and DC schemes?

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