Defined Benefit  

Pension ruling to push members into advice

Pension ruling to push members into advice

Savers with pension transfer values close to £30,000 could find themselves having to take advice after their pensions are equalised in line with a recent court ruling.

In a court case in October the High Court ruled that trustees of the Lloyds Bank pension scheme must equalise benefits between women and men who have guaranteed minimum pensions because of contracted out benefits.

The ruling was considered a solution for a pension problem spanning almost three decades, and defined benefit schemes are now having to decide how to equalise the contracted out benefits of their members.

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For members whose pensions are already close to the £30,000 threshold where financial advice becomes mandatory, the equalisation could mean they will now be obliged to pay for advice if they want to transfer out of their scheme.

Stephen Scholefield, partner at law firm Pinsent Masons, told FTAdviser the issue could adversely affect those with benefits valued at some £29,500.

He said: "The increase in their transfer may therefore be bad news, as the cost of the advice may exceed the additional benefit that they get."

So far some schemes have been able to quote transfer values that incorporate an adjustment for GMP equalisation, while others are still paying transfers on the same basis as before, and a few others have opted to halt pension transfers altogether.

Mr Scholefield pointed to added complexity with those not paying equalised transfers as it would become apparent only after the transfer was made that advice was needed.

He said: "Those that do not pay equalised transfers, but intend to top up later, will need to think about whether and how to factor this into the assessment of the value of the member’s benefits – which would need some careful explaining."

Sir Steve Webb, former pensions minister now director of policy at Royal London, predicted savers with £30,000 pensions would not be able to get affordable advice, therefore the most likely result was no transfer.

He said: "It's another sign the £30,000 threshold is too low. There are plenty of people of small pots for whom advice isn't affordable."

Andrew Boyt, pension transfer specialist and freelance consultant, agreed the situation could prove tricky for those affected.

He said: "Someone with a cash equivalent transfer value of £29,999 isn't obliged to take advice, someone with a CETV of £30,001 has a statutory requirement to seek advice before transferring, and may incur costs upwards of £750 for the pleasure.

"The arbitrary nature of the figures is the issue which needs to be addressed, Merely increasing the figure from £30,000 to say £35,000 opens a whole new can of worms as this will itself create a new hinterland of marginal cases."

Mark Williams, principal and London retirement practice leader at consultancy Buck, expects about 5m people to be impacted by this across the UK, although he added there were no statistics available to back this up.

The problem captures mainly people with transfer values between about £29,000 and £30,000 who built up GMP in the 1990s.