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The Final Salary Pension Transfer Process

25/04/16 Final Salary pension Transfer

The final salary pension transfer process is far from straightforward. In this post, we outline what is involved in deciding to transfer (or not). The process is time consuming but that is generally a good thing. It leaves plenty of time to carefully consider the benefits and risks of a transfer.

Collect Basic Information

To begin the process you will need your Cash Equivalent Transfer Value (CETV). You may request one CETV for free in any twelve month period from your pension scheme administrators. Ideally, you should also request an early retirement quote.

When you receive the CETV it will be valid for twelve weeks. If it expires before you enter the transfer process you can request another CETV but you will probably be charged. The cost is usually between £250-£450 (plus VAT).

Choose a Financial Adviser

You may wish to find an appropriate financial adviser at the very outset of your final salary pension transfer considerations. Or you may choose to take on the initial information gathering activities (see above) yourself before taking advice.

If, after due consideration, you do wish to action a transfer you must show that you have taken financial advice from a qualified financial adviser before the pension scheme administrators will action the transfer. This is a legal requirement if the value of the pension fund is £30,000 or more.

When choosing a final salary pension transfer adviser you should ensure:

  • They are authorised and regulated by the Financial Conduct Authority (check here https://register.fca.org.uk/).
  • They have the relevant FCA permissions to discuss, advise and action defined benefit pension transfers.
  • They have extensive experience of the pension transfer process.

The register will state if a firm is FCA authorised (or not) but it is not particularly user friendly. For those not familiar with the workings of the register it will be necessary to ask the Adviser to prove their permissions and experience.

Using an adviser who is not authorised by the FCA will put your pension fund at significant risk. While choosing an adviser without the relevant permissions can cause delays and increase fees. Selecting an adviser with appropriate experience (particularly experience of transfers from your scheme) reduces the risk of delays and/or mistakes.

First Contact

Your first contact with a Financial Adviser will usually be no more than an initial chat allowing you decide if the Adviser  is someone you can work with. 

During this initial free of charge discussion (officially known as a triage service) the Financial Adviser  will discuss the merits of retaining your final salary pension and outline the transfer process and costs should you wish to continue.

The first meeting 

At the first meeting, your circumstances and objectives will be examined in some detail. The adviser will collect and record all relevant information, discuss the transfer process, outline both the benefits and risks of transfer, discuss potential costs and provide an opportunity for you to ask questions.

The Financial Adviser will take the time to understand your unique set of circumstances, your objectives, your experience of managing investments and your attitude to risk.

The Analysis Process

The adviser will take the time to review the information collected. They will undertake appropriate transfer analysis and analyse all of the options available to achieve the  objectives you have discussed. Only when this is done will a recommendation be prepared for you to consider. The recommendation will be in the form of a report with all supporting documents added to the file.  

The second meeting

At the second meeting, the Adviser will review the process to date. They will check nothing has changed, explain the report, the recommendation and its implications in detail and answer any questions.

If you do decide to transfer the transfer value will often represent a significant proportion of your family wealth. You should consider with your adviser your investment strategy, investment management, costs and risk.

Crucially you will need to understand what investment returns will be required from your new scheme to meet your objectives and match the full benefits of the Final Salary Pension scheme you may leave behind. How likely is it that those investment returns will be achieved?

Our view is don’t be too cautious. Investing in cash will lead to an erosion of your wealth because of inflation and fees and don’t be overly speculative. You are preserving your wealth not attempting to “double the pot”.

Make sure you know what you are getting by way of ongoing service and access to advice. Ensure ALL fees are clear and you understand the potential impact of those fees on your pension fund over the long term. 

Deciding On A Way Forward

If the recommendation is to proceed with a transfer you will be given some time to reflect on the advice before deciding to proceed (or not). You should give yourself as much time as possible to consider the advice and review the information that has been presented to you in detail. 

If the recommendation is to remain in your final salary pension scheme a full explanation should be given as to why. If you are unhappy with this decision the adviser should outline the options available. You could decide to revisit the advisers understanding of your objectives or you may decide to follow the insistent client process where you can effectively instruct the firm to act against its advice. Note, however, the Financial Advice firm may refuse or be unable to  accept you on an insistent client basis

The Final Meeting

If you do decide to continue a final meeting will be arranged. At this meeting, you will have the opportunity to ask any questions. The required forms will be explained to you and signed. 

The Adviser will then submit the forms to the relevant providers with the aim of securing the transfer value within the guarantee period. The administration team will remain in contact with all parties to ensure that there are no unnecessary delays, ensure that all of the documentation is received and ask for timescales to conclude the transfer transaction.

The time and effort involved in the final salary pension transfer process should not be underestimated. If you are not willing, or able, to put in that effort on an ongoing basis then it is probably best to stay in your Final Salary Pension Scheme.

 

This blog is intended to provide a general review of certain topics and its purpose is to inform but NOT to recommend or support any specific investment or course of action. The past is not a guide to future performance. The value of investments can go down as well as up and you may not get back the full amount you invested. Tax and financial regulations can change. Any figures quoted above are correct at the date of publication.