Pension transfers

FCA recognises case against DB transfers has radically changed: The FCA has just launched a consultation which could change the way people wanting to transfer out of a final salary-type (DB) pension schemes are treated. Two years after the pension freedoms were introduced, making Defined Contribution (DC) pension schemes far more user-friendly, the Regulator is rightly recognising that the case against transferring out of guaranteed employer schemes has radically changed. Each case should be considered individually to assess the benefits and risks for that person.

Can be strong reasons to transfer out but must understand risks first: In the new pensions world, there are some compelling arguments in favour of DB transfers but the decision must not be taken lightly, particularly because it is irrevocable. Anyone whose transfer is worth over £30,000 must get independent financial advice.

Advisers have been under regulatory pressure to assume transferring out is wrong: In the old regime, the regulators rightly warned strongly against advising anyone to transfer. Indeed, financial advisers often refused to do the transfer for clients still wanting to after being advised against it. But the pension freedom reforms mean this attitude is outdated.

DC much more attractive now: Defined Contribution pensions, which build up your own individual pot of money for your retirement, are much more user-friendly now.

End of mandatory mass-annuitisation: In the past, someone who wanted to take their tax-free cash from a DC pension would usually have to buy an annuity with the rest, unless it was a very large fund. These annuities were inflexible and might not suit their needs. Now you can take out some money if you want to and leave the rest invested for later life. Some people can even get more tax free cash from a DC scheme than from DB.

No 55% death tax, can pass on IHT-free: People can now pass their pensions on in full to loved ones free of inheritance tax, whereas in the past they would face a 55% death tax charge on their unused fund. A DB scheme will only provide a fraction of the pension income for a partner and perhaps nothing for other relatives.