BUSINESS SUPPORT
WHY THERE ’ S STILL LIFE LEFT IN THE DEFINED BENEFITS MARKET
Graeme Fountain Business Development Manager Pensionhelp
Unless you have been asleep for the past year or so , you will have seen that Defined Benefit ( DB ) Pension transfer values have fallen significantly from the peak values we have seen in the period since Pension Freedoms were introduced in 2015 . It ’ s possible , but extremely unlikely , that in the foreseeable future , transfer values will return to 25 or 30 times that of the pension . So , you may well be asking if this is the end for DB transfer advice . Well , if all you are doing is assessing the merits of a transfer on the CETV , you might well think so . But as we all know , assessing the suitability of any potential transfer is much more than that and the economic factors affecting CETV values are the same ones opening up other opportunities . Whilst the demand for transfer advice has undoubtedly reduced , Pensionhelp is still being approached by clients who have realised that their future retirement plans are much more than a mathematical calculation and taking a gamble on the CETV .
Swapping the Guarantees Whilst we all know that the FCA ’ s starting position is that DB transfers are likely to be unsuitable for most people they also give a nod towards three broad circumstances where a transfer may be suitable , namely those who are wealthy , terminally ill or in financial difficulties . See : https :// www . fca . org . uk / consumers / pensiontransfer-defined-benefit We accept all of the above , and nowhere does it mention that a high CETV is an indicator of suitability . But with annuities providing greater value , looking at options other than DC drawdown is something we are increasingly being asked to consider .
There are many alternative options to taking a scheme pension which can provide a guaranteed income for life , and we have produced a Scheme Pension vs Annuity comparison calculator to assist us in our suitability assessments . The calculator gives illustrative examples of differing income shapes offered by annuities compared with the projected scheme income provided in the client ’ s benefit statement . When comparing against a level annuity income , it ’ s particularly interesting to see from the calculations , the “ Catch Up ” age ( the age at which the annual scheme pension income overtakes that of the annuity ) and the “ Breakeven ” age ( the age when the total scheme income cumulatively overtakes that of the annuity ). Furthermore , when exploring annuity options with clients , some still have misconceptions that their benefits will automatically die with them and are often surprised when they realise they have options to build in capital protection and income guarantees . And potentially with a higher income as well . So , can a client really transfer and get more value for themselves and their family than if they stay in a DB scheme ? And what can be achieved ?
• It may be that the scheme pension is Joint Life and the client is single , or it may be that the client has a partner but is concerned that the scheme pension will only pay a 50 % taxable dependents pension on their death .
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