Pension freedom crackdown: watchdog blocks firm from final salary transfers

FCA rules (at date of writing) state the starting assumption should be that a defined benefit pension transfer is not in the best interests of the client. Rightly so.

There are, however and as with all things, exceptions. If there weren’t, the FCA stance would be somewhat stronger and anyone found advising the transfer of a Defined Benefit scheme would likely be jumped on from a great height.

Those exceptions are, in my experience, usually down to an individual’s circumstances and requirements. A defined benefit scheme should not be looked upon as a pot of money that the individual holds but rather a deferred income as a result of working for a particular employer. There is little to no risk for the former employee that money won’t come their way. The risk is the sponsoring employer’s. Currently, however, larger sums than offered historically are being offered by schemes to transfer away hence the boom in this market.

Transferring away from a defined benefit scheme also transfers the risk to the individual.

If an individual is advised by a regulated and licenced adviser or firm there will, inevitably, be a charge for that advice regardless (usually) of whether the advice is to transfer or not. If the advice is to transfer for whatever reason or reasons, there is then the transactional element of the advice.The risk passing to the individual also needs to be managed. The quote from the article that people “…reported feeling they were being put under pressure to let advisers manage their money after a transfer…” suggests that they might not understand that risk or the relative merits of the original transfer.

My view is that advisers are ensuring that the advice given remains appropriate in the future and that any funds are protected and earmarked to provide a retirement income rather than used to buy, say, a Lamborghini.

Get advice regardless. Sadly there is one less firm from where you can get this advice.

A pension is a long-term investment. The fund value may fluctuate and can go down. Your eventual income may depend upon the size of the fund at retirement, future interest rates and tax legislation.

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