Against such a background, surely each case should be considered on its own merits? Pre-existing presumptions mean that the decision is already weighted against a truly independent recommendation.
I have long been of the view that each transfer should be a consideration of the quantitative aspects and the qualitative issues of the transfer, focussed by the needs of the client.
The quantitative is, in particular, a consideration of the critical yield done via the Transfer Value Analysis Service (TVAS).
The TVAS aims to provide the yield that would be needed to buy an annuity to match the defined benefit to be purchased at the normal retirement date of the scheme.
In the new post- freedoms world this does not seem to be a logical benchmark, as annuities are not currently first choice and indeed this whole principle is currently under review by the FCA. The real issues are the non-numerical, more qualitative issues and also (to some extent) the behavioural ones.
Qualitative issues
A client’s lifestyle choices may mean that the benefits from a DB scheme do not suit their requirements pre- and post-retirement and on death.
The DB scheme will offer an amount of income from a set date, possibly indexed but importantly with some form of actuarial reduction on taking the money before the retirement date or trying to take the money early, and it will probably not allow a more flexible option of when to take the money and how to take it at any time after 55.
The key qualitative factor must be the death benefits regime under DC, what with IHT planning, flexibility of beneficiaries and income tax planning opportunities. This is a difficult one to ignore.
Consider the case of the couple with a DB scheme each – do they need two spouse’s pensions? Would it be better to maximise income?
It may be that individuals prefer to have investment control and flexibility, particularly if they have a pattern of income in mind or if they wish to utilise specific investment opportunities.
For another example, consider the client who wants to start his own company – he has some income but would like to dip into his pension for ad hoc amounts to supplement this. Health prevailing, this could go on for a good number of years.
Employer issues
The ongoing funding of a DB scheme can have serious consequences for a company and indeed many employers might seek to wind up schemes due to complexity and cost. This has been back in the news recently with BHS, Austin Reed and Tata Steel in the headlines, and Brexit could potentially exacerbate the issues.
