Should you be afraid of DB transfers?

Well, I would say together we help clients and customers manage their finances, accrue their wealth and enjoy the retirement they wish for while caring for their families.

Advisers can only help clients achieve good outcomes if they fully understand their goals and aspirations. This can only be achieved if all the facts are known, and all the options to achieve these outcomes are discussed.

Clients in DB schemes should have the right to access advice as much as DC clients. To not factor in all the income options that can be achieved either by retaining the DB benefit or through a transfer of benefits would be like making a decision for the client without exploring all the options with them.

What if the client has an awareness of financial concerns at the employer and this wasn’t considered when offering advice on a DB transfer?

So, while people shouldn’t necessarily be afraid of DB transfers, there should be a note of caution that the client may only see the value of the transfer and not see the value of what they may be giving up.

That means there is a need to point out the benefits that a client enjoys by being a member of a DB scheme:

■ The investment risk sits with the scheme who are obliged to meet the ‘pension promise’

■ The scheme offers a guaranteed income throughout retirement paid directly to the client

■ It will normally include some protection against the effects of inflation

■ It will usually pay a widows/widowers pension on death

But can anyone honestly make the decision that the DB benefit provides the best outcome for the client without knowing all the facts? There are some obvious considerations:

■ Does the client have any underlying health conditions or limited life expectancy that should be taken into account? What if the client died after only one pension payment had been made and the family were made aware that if benefits had been transferred a lump sum payment would now be available for distribution. How would you explain your recommendation to the family in this instance?

■ If single it may be possible to secure an annuity that exceeds the pension offered by the DB scheme. When there is a spouse, have their assets also been taken into account in the decision making process?

Does a widow/widower’s pension have any value when the spouse is financial independent and there is a greater need to provide for the family in the event of death?

However, recent news of the deficits in the BHS & Tata Steel pension schemes highlights that there are other factors, often forgotten, that should be taken into account. What if the client has an awareness of financial concerns at the employer and this wasn’t considered when offering advice on a DB transfer?

What happens if control of the scheme is passed to the Pension Protection Fund (PPF) and the client sees a reduction in the benefits they were due to receive? Would the client feel aggrieved enough to hold you responsible for not gathering all the facts?

In conclusion the issues can be complex but not much more complex than a retirement decision in DC. The best way to help these clients to the best outcome is a well-documented structure to ensure all the facts are covered. Take the emotion and fear away and focus on client goals.

Alastair Black, head of financial planning propositions at Standard Life