Defined BenefitMar 30 2020

Regulator's DB freeze could create issues for advisers

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Regulator's DB freeze could create issues for advisers

According to Jonathan Camfield, partner at LCP, TPR’s plans to curb the effect of coronavirus on DB schemes will create extra difficulties for advisers as they find that each pension scheme they are dealing with may respond to TPR’s new flexibilities in different ways.

On Friday, the regulator published guidance allowing DB schemes to delay member requests to transfer out of their scheme by up to three months.

This was to give trustees more time to calculate cash equivalent transfer values (CETVs) as fluctuating markets have made this more difficult.

Mr Camfield warned as the guidance is not legally binding the statutory right to a transfer within set timetables has not changed and clients may complain if they do not get the outcomes they expect.

He also warned the guidance may create a raft of issues for trustees as they balance adviser requests and determine what would be the best outcome for members.

He said: “The current market volatility means that handling requests for DB transfers is even more challenging for pension schemes than normal, and some will welcome the opportunity to take more time to consider their approach.

“The legal situation is complex, with trustees potentially facing challenges whichever route they take. If trustees hold up transfers and transfer value levels fall, or the company goes bust in the meantime, members may complain that they have lost out.  

“But if trustees allow a transfer that they could have delayed, and client investments perform poorly, there may be a different set of challenges. Trying to do right by the members who want to stay in the scheme and by those who want to transfer out will be a difficult balancing act in some cases”.

But Alastair Rush, principal at Echelon Wealthcare, said this should not be too much of a problem for advisers as DB transfer advice should always be based on each individual’s circumstances.

Mr Rush said: “Given that this type of advice should be bespoke anyway, and not an industrialised production line process, the different requirements of each scheme shouldn’t be a problem. 

“And unless the client’s circumstances were extenuating, it would be a brave or foolish adviser who would go against the guidance of the regulator in such challenging times.”

Mr Rush has welcomed the TPR’s guidance but hopes that individuals “use the time wisely”.

He said: “I hope that those wanting to transfer have the opportunity to reflect on what might be a great decision, but which also might be a catastrophic one.  

“A carefully advised client is always going to be a happier one, and that means one who is going to remain with you and not have cause to regret their decision.”

amy.austin@ft.com 

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