AJ Bell pension expert Tom Selby looks at the frustrations with moving a pension
Thursday 08 Aug 2019 Author: Tom Selby

I am considering transferring my defined benefit (DB) pension to a SIPP. I am a keen private investor, with a sizeable portfolio, which I’ve managed since 1994.

I am being stymied at every turn. If an IFA provides a transfer suitability report to say that it is right for me to transfer then they say they have to manage the money due to professional indemnity considerations. I want to manage my own money but am not being allowed to.

Surely this is not what the FCA intended?

David


Tom Selby AJ Bell Senior Analyst says:

You aren’t the first person to get in touch on this issue. Alongside the introduction of the pension freedoms reforms in April 2015, the Government brought in an advice requirement for members with defined benefit (DB) pensions who wanted to move their money to a more flexible defined contribution (DC) alternative like a SIPP.

This requirement means people with private sector DB entitlements worth £30,000 or more have to take regulated advice before transferring their fund. It’s important to note that most public sector DB pensions do not allow transfers out.

The rules do not say you need to receive a positive recommendation to transfer out of your DB scheme – you are merely required to obtain advice from a suitably qualified, regulated financial adviser before you do so.

However, for the advisers involved it is not just about following the letter of the rules. Advisers have businesses to run and part of that is deciding the amount of risk they are willing – or not willing – to accept.

While a DB transfer can be a perfectly sensible and legitimate course of action – for example, where someone is in ill-health, has significant debts or has no spouse and wants to pass something on to their loved  ones when they die – for advisers it is a tricky area to get involved in.

Furthermore, the FCA, which regulates the market, says they need to start from the assumption a transfer is not in people’s best interests.

Extra qualifications are needed for those who wish to advise on DB transfers, while as you mention there are insurance implications for IFAs who enter an area increasingly viewed as high risk.

While this is undoubtedly frustrating, the regulator has made it clear that any DB transfer recommendation needs to consider both the initial transfer and where the money is invested afterwards.

They do not stipulate the adviser must manage the investments after any transfer, but you would need to tell the adviser how you intend to invest, and they must take this into account when making their recommendation. It is possible their insurers have imposed additional conditions regarding ongoing advice, but this won’t always be the case.


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