Knock-on benefits for advisers of pension transfer demand

Knock-on benefits for advisers of pension transfer demand

Financial advisers are seeing their client numbers increase thanks to the popularity of defined benefit (DB) pension scheme transfers, even if the recommendation is not to move their pots.

According to Alistair Cunningham, financial planning director at Surrey-based Wingate Financial Planning, around one in five individuals that contact his firm asking for a transfer recommendation end up taking advice in other areas.

The number of cases where his firm recommends a pension transfer is very low.

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He said: “If we speak to 20 people about final salary transfers, 19 of them we will not even give advice to [transfer].”

As an example, Mr Cunningham told FTAdviser about a client that was offered £4.5m in a DB transfer.

He said: “For various reasons he will not transfer out, but now he wants us to help him to just take the benefits.

“So, what he is probably going to do is rather than transferring out when he is 55 into a defined contribution (DC) scheme and take benefits immediately, he will probably take it in five years’ time, so we are helping him with that.”

After pension freedoms, savers have been seeking to take advantage of the high transfer values of DB schemes and to move their nest eggs into DC plans.

Figures published by Mercer in April showed that as much as £50bn has been pulled from final salary pension schemes in the last two years.

Typically, Mr Cunningham’s clients are senior executives or owners of businesses that are at the point of retirement.

They will have generally 10 to 15 years in DC or a self-invested personal product (Sipp), and maybe 10-15 years in a final salary scheme, he said.

He said: “About two thirds of what I do is pensions [related].

“[Business is getting better], but without the risk of doing all the stuff that we do not want to do.”

Other advisers are also reporting an increase in selling satellite services to potential pension transfer clients as people who would never have sought financial advice are now having to due to pension freedoms.

Under the rules introduced in 2015, savers with a DB pension pot higher than £30,000 are obligated to seek regulated financial advice.

Gem Durham, independent financial adviser at Obsidian, highlighted a recent case where she ended up providing more services than the initial request from the client.

She said: “I did some income protection for someone who came in looking for a DB transfer. In that case, the DB transfer might go ahead.”

Ms Durham argued that it is really beneficial for these savers “to get financial advice, and not only for their DB transfer”.

She said: “I enjoy this work, because I feel that I help them more in a way.

“But there are challenges, because we have a different way of speaking to them. We need to be really sure that they understand what we are saying without patronising them.”