Jamie Smith of Foster Denovo says using an adviser with practical experience is key when deciding whether to transfer a final salary pension
When thinking about transferring your defined benefit (DB) or final salary pension scheme, we believe it’s important to work alongside the right financial adviser - somebody who listens, understands and gets to the heart of what matters to you.
While it is a legal requirement to take specialist financial advice if you have DB benefits with a transfer value of over £30,000, it does not always mean that transferring will be the right outcome for you.
The search for the right financial adviser is not just about looking for someone with the correct qualifications, although of course that is important. It is also about making sure you choose someone who has a high level of practical experience in this area. The high level of complexity around transfers will likely be reflected in the price you pay for the advice, and so you also want to make sure that you’re comfortable you’re receiving the best value for money.
Below, I have outlined five key things we believe you should consider when choosing a financial adviser.
- Are they starting from the right perspective?
First, make sure the financial adviser starts from the assumption that a DB transfer would be ‘unsuitable’ for you. Giving up the guarantee of an income for life is not a decision to be taken lightly and not one which can be reversed. Additionally, you need to be comfortable with taking on the subsequent responsibility for managing everything, from investment decisions to how you take your benefits.
- Are they listening to you and looking at the whole picture?
You need to find someone who will ask you questions about your aims, circumstances and ambitions, to help get the right outcome for you. Giving advice on DB transfers is extremely complicated. It takes many hours, and sometimes days of work, to analyse and make a qualified recommendation, and decisions are not reversible – so you need to make sure you’re working with the right person.
Make sure your financial adviser takes time to understand you and your circumstances. They should have an overview of all of your financial planning, including estate planning. This will look at what you would like to happen to your estate on death and who you would like to benefit (for example, children and grandchildren). It’s important to work with an adviser who considers your wider circumstances and other assets you may have, rather than focusing on your pension plans in isolation.
They should also look at how you will be able to fund your retirement in detail, including all of your possible sources of income. Depending on your requirements there are a number of ways to do this, including cash flow modelling which can help bring your money to life. Cash flow forecasting can help show you where you are now financially, and where you could be in the future.
- Are they considering the long-term impacts?
Your financial adviser should also be clear with you about the long-term responsibility you are taking on when you decide to transfer out of a DB scheme. When you transfer out, you take on responsibility for how well your investments perform, rather than leaving this to the trustees of the pension scheme. This could mean that the value of your fund can go up or down - your adviser should make sure you are completely comfortable taking on this risk and fully discuss and consider your attitude to risk before any decisions are made.
- How is the decision being assessed within the firm?
It’s also important to consider whether the financial adviser’s advice is ‘signed off’ within their firm. The regulator has stated that all advice will ultimately need to be signed off by an adviser with a DB transfer qualification.
This could be done as part of a DB transfer committee, whose role would be to challenge the advice at the early stages to make sure the adviser has considered every option. Or, it could be a technical specialist within their firm who reviews their advice to make sure it’s right for you. However, there are some firms who may not have this expertise in house and so it’s important to be aware that they may be outsourcing this final stage to an external company to sign off. You need to make sure you’re comfortable with this or find an adviser who you know has the necessary in-house specialism.
- How much practical experience do they have and what is the history of previous transfers they have dealt with?
DB transfers can be extremely complex and so it’s vital to find someone with a high level of practical experience in this area. Also make sure you ask to see details of the percentage of transfers they have completed, in comparison with those that have not gone ahead. It would be unusual to find an adviser who is transferring the majority of cases they review.
Most importantly, you need to find an adviser who will take the time to fully listen and understand what is important to you, so that they can advise you best on what steps you can take to help achieve your goals.
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