News and Views

The ability to access all of your pension benefits when the new pension freedom regulations came into effect in April 2015 was a game changer.

The changes to pension death benefits in particular have far reaching wealth planning considerations, in particular the ability to pass down pension wealth through the generations. There is now the option to pass pension wealth tax efficiently to your spouse, partner, children, grandchildren, in fact any beneficiary of your choosing and any future successors, either tax free or at their marginal rate of tax until the funds have been depleted. Pension assets on death are not liable to inheritance tax, therefore the planning options for funding retirement and estate planning are much wider.

The changes to death benefits available with Pension Freedoms is just one of the factors that has seen a rise in interest from those with Defined Benefit (DB) Occupational Pension schemes seeking
advice on what transferring out of these schemes could mean for them. The option to transfer is not a decision that can be taken lightly, it is potentially one of the most important financial decisions you will make. It is for that reason that the Financial Conduct Authority (FCA) has made it mandatory to receive advice from a qualified pension specialist if considering transferring a DB scheme.

At one end of the spectrum there are those individuals who are critically dependent on their DB scheme with little or no alternative sources of income to rely on in retirement. For those individuals the guaranteed nature of the benefits attached to their existing scheme will likely mean the risk versus the reward and cost of transferring out of such a scheme will not stack up.

At the other end of the spectrum are those individuals with significant wealth where perhaps the income from their DB pension scheme could be irrelevant to their future lifestyle as they may have other income and investment resources. Therefore reviewing all aspects of their wealth would be tied into a broader piece of financial planning.

For those individuals somewhere in the middle, however, the suitability of such a big decision as whether or not to transfer out of the safeguarded benefits of a DB occupational scheme to a personal pension requires a great deal of technically sound financial planning advice. Remember moving out of a DB pension scheme means that all of the investment risk, the investment decisions made and therefore the future benefits received, moves to the responsibility of the individual as opposed to the employer of the scheme.

Receiving quality financial planning is a must if transferring out of a DB scheme is something you are considering, this is an area where planning is so valuable and necessary. Below is a checklist of some of the areas your Pension Specialist will cover during discussions:

1. Advice needs to be holistic; all aspects of an individual’s assets, liabilities, income and expenditure need to be considered.

2. An adviser needs to be critical and challenging in all aspects of the advice to ensure the client does not make poor or impulsive decisions without warning. It is an irreversible decision once a transfer takes place and therefore the decision must be focused on the long term and taken seriously.

3. All options and alternatives available need to be tested, how does each scenario weigh up against the others? What are the costs? All the facts, objectives and research must be collated and fully analysed to help support any decision.

4. If the transfer does proceed, it needs to be regularly reviewed. The money needs to be managed on a sound basis as the investment risk has moved from the employer to the employee.

Advice in this area is not straight forward, is time-consuming, needs to be provided by an appropriately fully qualified pension specialist and cannot be done ‘on the cheap’, to ensure all aspects are considered when accessing the suitably of such an important decision. Occupational pension transfer advice cannot be given in isolation, it requires a full holistic approach to all aspects of your wealth. A good adviser will also not be afraid to say ‘no’ this is not the most suitable advice given your circumstances.

Pension Scams

The media is full of scare stories about pension scams and individuals being ripped off when trying to access their pension assets. Promises of one-off investments, high returns, pension loans, upfront cash, loopholes, access before the age of 55 are all things that should make you wary, remember if it sounds too good to be true it probably is! If you are approached about accessing your pensions, there are a couple of easy things you can do to check the legitimacy of the adviser/company; check the FCA register, ask to see evidence of their qualifications, seek a second (third or fourth) opinion. Do not proceed with any advice until you are 100% comfortable and confident in the advice given and the person providing that advice.