Transferring pension benefits from one scheme to another is a complex area fraught with pitfalls. In many cases, members of Defined Benefit (DB) Pension Schemes – also known as Final Salary Schemes – choose to move their DB benefits, based on length of service and salary, into a Defined Contribution (DC) Scheme where growth is dependent on investment performance. They do this in the pursuit of better returns. The same outlook can motivate them to transfer benefits from one DC scheme to another.
The main risk of transferring, especially with DB to DC transfers, is that existing schemes may have guaranteed benefits (known as “safeguarded” benefits) that can’t be replicated under a new arrangement. It’s critical to understand what is being given up and to take this into account when considering an alternative pension arrangement. The pension saver who doesn’t understand what a transfer entails is in danger of losing valuable guaranteed benefits or incurring future unwanted responsibilities and costs.
It’s a minefield and advice is critical. Indeed, getting financial advice for transferring is compulsory for anyone with safeguarded benefits worth over £30,000. But where should you go to ensure you get the right advice?
The Personal Finance Society (PFS) is the professional body for financial advisers. They’ve come up with a set of standards and code of practice for firms to adopt when dealing with clients considering transferring pension benefits – the Pension Transfer Gold Standard. Both Smith & Pinching and Almary Green have been accepted by the PFS as qualifying for Gold Standard status.
As early adopters of the new Gold Standard, we adhere to the standard’s principles of good practice in our relationship with clients considering a pension transfer where safeguarded benefits are involved. These determine the structure of our processes as well as the quality of advice and transparency of the information we provide to you.
These principles are aimed to achieve the very best standards of advice in this area and include four commitments that we see as being central:
The fact is that in the vast majority of cases, a transfer from a DB scheme to a DC scheme may not be in your best interests. However, there are circumstances when it is worth considering – where you have sufficient other guaranteed sources of retirement income, for example, or where your focus is on providing benefits for beneficiaries on your death. Where a transfer may be suitable, it is hugely important to make sure that the adviser supporting your decision is from a firm holding the Pension Transfer Gold Standard.
Any opinions expressed in this article are subject to change and not advice. Any solution described may not be suitable for everyone. The value of an investment and the income from it could go down as well as up. The return at the end of the investment period is not guaranteed and you may get back less than you originally invested. The tax treatment of investments depends on individual circumstances and is subject to change.
Smith & Pinching and Almary Green are Chartered Financial Planners and adhere to the Pension Transfer Gold Standard. If you would like a no-cost exploratory review to discuss your retirement planning with an adviser from either Smith & Pinching or Almary Green call us today on 01603 789966 or email firstname.lastname@example.org.