Opinion 

Detail pension risks for a rosy future

Ken Davy

Ken Davy

Do not get roughed up over transfers.

I recently met a former client whose pension I had refused to transfer from a final salary scheme to a personal pension 30 years earlier – much to his annoyance at the time.

He delighted in telling me that he retired 10 years ago and, thanks to his company pension, was enjoying great holidays, playing golf whenever he wanted and still running his own car.

As we parted I felt a warm glow and could not help but reflect on how different his life today would have been had I taken the easy – and more profitable for me – route of arranging the transfer. He would definitely be taking fewer holidays, playing less golf and be reliant on his bus pass for transport.

I think this highlights the potential crisis facing today’s final salary transfers as a direct result of pension freedoms. The risks to members’ benefits appear to be increasing by the day, while financial advisers are all too often being placed in impossible situations.

Regular readers of this column will be well aware that I have consistently argued that advisers should only facilitate transfers from final salary schemes under duress.

Even then, the client should be left in no doubt whatsoever about the risks they are taking and the benefits they are surrendering. While my view has not fundamentally changed, some of the external drivers for clients wanting to leave schemes most certainly have.

Firstly, media interest in the collapse of BHS has highlighted the massive pension funding shortfalls facing many final salary schemes.

Secondly, the base rate halving and stories emerging of transfer values escalating to anything from 20 to 35 times the anticipated pension and finally, rumours that the government is going to make it easier for employers to reduce their future, and possibly even current, scheme benefits.

Funding concerns and the collapse of schemes are not new, what has changed is that if you are 55 or older you can vote with your feet and access the cash. Only time will tell which route is the right one, but the number of imponderables for advisers to consider has now increased substantially.

Every single case must be considered on its individual merits but, whatever you decide to facilitate for a client, I cannot stress too highly the importance of documenting what the risks are.

I would not want you to meet one of your clients in 20 years and come away with a black eye and a roasting rather than the warm glow of appreciation.

Ken Davy is chairman of Simplybiz Group

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