Advisers have been urged to proactively check whether their clients could be entitled to a top up payment on their DB transfer on the back of a recent court ruling.
David Brooks, technical director at Broadstone, said advisers played a significant role in helping their clients get these top-ups as there was a huge amount of work required to correctly identify which members are affected.
He said: “If an adviser has a client and they know they’ve made a transfer from a contracted-out defined benefit pension scheme then I would expect them to proactively contact the scheme as there is a fair chance there would be some additional money.
“The scheme may struggle to work it out, and it may take time to do so.
“However, in the long run it may well be assisting the scheme in the cost of tracing members who transferred out many, many years ago.”
This comes after the High Court ruled last week (November 20) that trustees committed a breach of duty if they did not equalise the member’s guaranteed minimum pension benefits at the time of calculating the cash equivalent transfer value.
Therefore, trustees of DB schemes will have to revisit transfers made in the past 30 years for individuals with contracted-out benefits, and provide a top-up if necessary.
Ricky Chan, director and chartered financial planner at IFS Wealth and Pensions, said while clients may not necessarily need advice to get this top-up, advisers can help clients check if their CETV (of the transferred out pension) has received an equalised GMP already.
Mr Chan said: “It appears that the scheme trustees are not legally required to proactively contact affected clients (though many may choose to do so to limit potential liability in future), and many clients won’t have the technical knowledge to understand if they were affected.
“Hence, I think the responsibility may fall upon advisers’ shoulders.
“Of course, a problem arises where clients have disengaged with their adviser or the client has passed away.”
Mr Brooks agreed that adviser support would be needed as calculating the sums was likely to be complex.
He added: “There could be the option to have the money paid directly to the member. Advisers may feel a duty of care to that person to help.
“It is feared that claims management companies may try and take over cases for members, which may not be in the client's best interest.”
Meanwhile, Andrew Pennie, marketing director and head of pathways at Intelligent Pensions, raised concerns about how much data the trustees hold.
Mr Pennie said: “Some concerns exist about whether schemes will have robust data of members who transferred away and advisers and their clients may need to take proactive action to ensure they don’t miss out.
“It is difficult to see how clients could be forced to take advice on these top-up payments but with some potential payments likely to breach the current £30,000 advice threshold, perhaps the current rules will prevail.”
GMPs were created due to contracting out, which meant DB schemes could prevent their members tripling up on pension benefits by building up a basic state pension – state earnings-related pension scheme – and an earnings-related occupational pension. In exchange for giving up Serps, both employees and employers paid less in national insurance contributions.
But as a consequence of the different treatment of men and women in state pensions being ruled discriminatory under EU law, in October 2018 the High Court ruled that trustees must also equalise benefits between women and men who have GMPs.
Both Mr Pennie and Mr Brooks said this had the potential to hit thousands of transfer clients.
Mr Pennie said: “There is a huge amount of work to review all CETVs over the past 30 years to identify where a GMP exists between 1990 and 1997.
“Schemes will then need to decide how these member benefits should have been equalised and identify all who have lost out financially.
“Thousands of people are expected to be impacted by this ruling and potential member compensation is estimated to range between a few pounds and, in a minority of extreme cases, tens of thousands.”
Mr Brooks added: “The numbers are hard to estimate but we know there have been over 500,000 transfers since 2015 (when DB transfers became very popular) and 25 years of transfers before that.
“We are easily considering hundreds of thousands of people affected.”
amy.austin@ft.com
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