Defined BenefitApr 11 2018

Under which circumstances is a pension transfer warranted?

  • To get up to speed with the FCA's policy statement on DB transfers
  • To learn some of the key points now required on DB transfers
  • To learn about APTAs and TVCs
  • To get up to speed with the FCA's policy statement on DB transfers
  • To learn some of the key points now required on DB transfers
  • To learn about APTAs and TVCs
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CPD
Approx.30min
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CPD
Approx.30min
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CPD
Approx.30min
Under which circumstances is a pension transfer warranted?

Some changes that have been made to the handbook include the following:

  • A new rule requiring advisers to consider the impact of tax and access to state benefits, particularly where there would be a financial impact from crossing a tax threshold/band.
  • A new rule to clarify that the APTA must consider a reasonable period beyond average life expectancy, particularly where a longer period would better demonstrate the risk of the funds running out.
  • A revised rule requiring advisers to consider trade-offs more broadly.
  • New guidance on considering the safety nets – the Pension Protection Fund (PPF) and Financial Services Compensation Scheme (FSCS) in the UK – that cover both the current and receiving schemes in a balanced and objective way.
  • New guidance that if information is provided on scheme funding or employer covenants, it should be balanced and objective.

The last couple of these changes are interesting and they tie in together, but again are hard to deal with accurately. In most cases an adviser is not going to be able to get an accurate feel of the strength of the company and therefore the pension scheme. I cannot say I am surprised that this has been included though, given recent high profile cases. 

Transfer Value Comparator (TVC)

The FCA intends to proceed with the mandatory TVC. The purpose of which is to provide consumers with some context for the level of their cash equivalent transfer value (CETV) and to help them make an informed decision.

The TVC shows a comparison of the CETV and the estimated cost of acquiring the same promised income in a DC scheme. A CETV is generally based on the full value of the expected pension income. The TVC should not take account of any personal circumstances because these will be addressed in the APTA.

I feel that this is a very interesting change and will hopefully, as it is a graphical representation, be easier for clients to understand. Although with the lack of personal circumstances taken into account it may have less overall meaning in the report than it could have.

However, I feel that when you stipulate a calculation such as this, making the parameters very restricted will remove any chance of manipulation of the results. 

As mentioned earlier some of the underlying assumptions proposed for the TVC have been amended to make it more generic and for a fairer comparison with the DB scheme. 

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