The view from the Financial Conduct Authority (FCA) has always been that for the majority of people transferring out of their Defined Benefit (or Final Salary) pension scheme, would not be suitable.
In fact, to back this up, the FCA has recently written to a number of specialists Defined Benefit (DB) firms (including CCFPS) for further information on the number of DB transfers advised on.
The FCA view is that in the main it should not be in the client’s best interest to transfer and so it has expressed concerns about those firms where the rate of advice to transfer seems to be high.
However, the basis of the FCA’s rationale is now starting to be challenged. Quilter, now the largest advice firm in the UK has now joined the list and has come out to say that it too believes that the FCA’s position may be wrong. The issue seems to be that the FCA’s figures do not include clients who have been “screened out” of the process before even getting to the advice stage. This actually accounts for a significant proportion of clients who enquire about transfer advice. Quilter is now quoting a figure of 10% – 15% as being the number of clients they advised to transfer their DB Pension, when you take into account all those clients who made initial enquiries. That figure is very much in line with our experience, which is 20% of our overall enquiries.
Specialist DB Pension transfer firm Tideway have taken this even further (according to the FT Adviser 21/11/19) and they are suggesting that the FCA’s “negative review” of the DB transfer advice market could actually result in up to £25billion in pensions not being transferred when in they could and should be. They argue that this figure could be the result of “adviser bias” against transfer advice as a result of the FCA’s “attack” on firms providing advice in this specialist area.
Tideway pointed out that despite the FCA’s position that most transfer would be against the clients’ interests that in many cases pension funds were offering extremely attractive valuations to clients, which clients shouldn’t ignore.
Tideway’s view was also endorsed by the Chartered Institute for Securities and Investments which also stated that it believed that DB transfers were certainly beneficial for some people.
There is no doubt however that DB pensions are extremely valuable. Only recently, research by the Institute and Faculty of Actuaries, showed that workers aiming for a modest pension of £10,200 a year on retirement, would need to start saving £86/month into their pension from the start of their working life. But in order to achieve a pension of only double that £20,200 a year, they would need to save a whopping £799/month! That’s well over £400,000 in pension contributions over a 45-year working career and represents over a quarter of the average worker’s salary.
To me that puts into perspective the phenomenal financial value of the final salary pension schemes enjoyed by many public sector workers, most of whom seem to have no idea just how much their pension schemes are worth in comparison to private pension schemes.
As always however, the question of whether you should or shouldn’t transfer your final salary pension has really got nothing to do with the FCA, or anyone else’s view for that matter, it’s about what’s right for you based on your own personal circumstances.