Last year was a bumper year for transfers from defined benefit (DB) schemes, and 2017 could be even better. George Osborne’s 2014 Budget brought in pension freedoms, just in time for the 2015 election, and the fall in gilt yields and consequent rise in transfer values resulting from the Brexit vote has fanned the flames as scheme members scramble to get their pensions moved.
When Mr Osborne introduced the freedoms, the then pensions minister Steve Webb, highlighted just how flexible pensions would be, saying that if people wanted to use their pension funds to purchase a Lamborghini they were free to do so. But it soon became evident that this would only apply to those with defined contribution (DC) plans, such as personal pensions and self-invested personal pensions (Sipps), and not to DB or final salary schemes.
Mr Osborne must have sensed trouble ahead from DB members, as he took two important steps:
• He banned transfers from “unfunded” schemes (otherwise known as government funded schemes) such as the NHS Pension Scheme and the Civil Service scheme.
• He introduced a requirement for anyone with safeguarded benefits – that is any DB scheme plus some DC schemes with guaranteed pensions – worth more than £30,000 to take advice from a Pension Transfer Specialist (PTS).
Whether he really believed that introducing the requirement for a PTS would avoid all of the scams that followed the change in legislation, which came in from April 2015, we do not know. However, trustees of schemes and their advisers have worked hard to put protections in place. But what to a trustee is seen as a protection may be seen by a pension scheme member as an obstruction.
How then does a member of a DB pension scheme go about transferring their funds into a DC plan to enable them to access the pension freedoms?
What they should not do is start the process by requesting a transfer value; the cash equivalent transfer value (CETV) is only guaranteed for three months from the date of calculation and the member does not have a legal right to request a new value within 12 months of the calculation.
Taking steps
Three months might sound like plenty of time, but:
• The administrator has ten days after it has been calculated to issue the CETV.
• Most members do not immediately read the many pages sent to them (one scheme sends out more than 50 pages, including every form that might ever be needed).
• There is the time taken by the member to find a suitably qualified adviser, something many people find difficult.
• Once the adviser has been appointed, he will usually have to write to the scheme administrator for more information as there is no standard information sheet for administrators to provide.
• Most administrators have servicing standards which promise a reply within upwards of 10 days, so if there is a follow up question after they have replied, the information gathering will take more than a month.
It is rare for the adviser to get all of the required data within two months of the CETV being calculated, and there then arises the small matter of analysing the data and issuing a transfer value analysis report and a suitability letter. We aim to turn around reports within five days, although there will be times when the report takes a little longer.
