Defined BenefitJun 18 2018

Medically underwritten pension transfer tool launches

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Medically underwritten pension transfer tool launches

A tool connecting financial advisers with nurses when assessing a defined benefit (DB) transfer has launched.

MorganAsh’s Life Planning Report service allows advisers to medically underwrite the life expectancy of a client when determining whether they are likely to run out of money in later life.

The service delivers a personalised best estimate, which is based on a phone interview with a nurse, who will ask them about their health, lifestyle, occupation and family history.

This information is then evaluated by an underwriter, who will assess the likely implications for longevity.

MorganAsh said tools currently available, which rely on statistical average figures that take no account of the individual’s health or lifestyle, sail close to the wind when it comes to compliance in DB transfer advice.

Andrew Gething, managing director of the underwriter, said: “Simply using average life expectancy as the measure of how long someone is likely to live and need to draw a pension income is clearly flawed, because it will underestimate longevity in 50 per cent of cases.

“We believe a much better approach is to provide a specific best estimate of life expectancy for an individual based on a professional assessment of their health and lifestyle.”

The consideration of how long a client might be expected to live and need an income from their pension is an important factor in recommending whether they should remain in a DB pension scheme or transfer out.

The regulator introduced a requirement in its pension transfer advice paper in March, which stated advisers must “plan for a reasonable period beyond average life expectancy particularly where a longer period would better demonstrate the risk of funds not lasting throughout retirement”, after it had heard about concerns from the industry that “underestimating life expectancy seems to be common”.

Al Rush, principal at Echelon Wealthcare, said he could see how some refinement would help in this space but he warned of drawbacks if applied to other areas in the pension space.

He said: “It stands to reason that someone living in a town where life expectancy is low anyway, and in an occupation that historically produces shorter life expectancy, might stand to benefit from a more tailored approach.  

“Having said that, where do you draw the line and how far do you go. The state pension would become unsustainable and unaffordable if we adopted a similar approach there, even though it might be 'fair' to do so.  Sometimes, the cross subsidy is vital for the greater good.”