St James's Place  

SJP warns against requesting pension transfer values

SJP warns against requesting pension transfer values

St James's Place (SJP) is advocating clients don't request pension transfer values before speaking to a financial adviser.

Ian Price, divisional director for pensions and consultancy at SJP, said there is a risk that individuals "get blindsided by a big number" when they get a cash equivalent transfer value (CETV) from their defined benefit (DB) scheme.

He said: "The first thing they should do is to talk to a financial adviser to see if a transfer is appropriate for their case."

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Following the introduction of pension freedoms in 2015, the volume of defined benefit pension transfers has been soaring, as savers seek to take advantage of sky-high transfer values and move their nest eggs into defined contribution schemes in order to access their cash.

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

Meanwhile HM Revenue & Customs data showed more than £14bn has been unlocked from defined contribution pensions since pension freedoms came into effect.

Alistair Cunningham, financial planning director at Wingate Financial Planning, shared Mr Price's opinion.

He said: "I would recommend having a discussion with an adviser first not least because there is often a way to achieve most individuals' objectives without giving up safeguarded benefits.

"There is no doubt that a number of people are more likely to make poor decisions when blinded by the figures, which by their nature are often 30 to 40 times higher than the pension promise."

Mr Cunningham also flagged a worrying trend that more trustees are seeking to send transfer values unsolicited, as part of an annual statement, arguing "this exacerbates the issue".

Mr Price argued that transferring out from a final salary scheme has to be "an individual decision based on individual circumstances."

He said: "I am paranoid about that. That is why we check all of the advice [we give] before signing off."

The Financial Conduct Authority (FCA) is also concerned by the appeal of the sky-high sums being offered to people to ditch their defined benefit pensions.

Rory Percival, former technical specialist at the regulator, said in November the watchdog is introducing changes to give another 'big number' to distract savers from focusing too much on high transfer values.

The FCA has introduced the concept of a transfer value comparator (TVC) in its consultation paper CP17/16, Advising on Pension Transfers, published in June.

The draft rules suggest replacing the current transfer value analysis (TVAS) with a requirement to undertake appropriate analysis of the client's options - an 'appropriate pension transfer analysis' or APTA, which will include the TVC.

Under the planned new rules, advisers will have to provide their clients with a value of how much the benefits in the defined benefit scheme would cost today in the open market, which is the TVC.