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Advice on pension transfers from a next generation planner

Advice on pension transfers from a next generation planner

Transfers from defined benefit pensions are extremely topical at the moment and there is already considerable debate within our profession about whether a transfer is or is not the right thing to advise.

It is a bit of a minefield and I would not blame anyone for not getting involved in providing transfer advice. The recent Financial Conduct Authority consultation paper was welcome news from the regulator and gave some clarity about whether critical yield is still a relevant measure or not. But putting that aside if I may, if the advice is done well then for next generation planners this is an area that you should not shy away from.

As a younger adviser myself, I am perhaps not as experienced in this area as many others, which brings its own challenges. I did not experience the mis-selling scandals of the 80s and 90s, so hopefully I do not have any bad habits, but equally I did not go through the subsequent pension transfer reviews and the learnings that came out of it. With this clean slate, an open mind and some good mentoring, advising on transfers can be a great opportunity to really engage with new and existing clients.

Build relationships

When talking to clients it can often be difficult when they have seen the (potential) transfer value and you can see their eyes almost light up at the prospect of the tens or hundreds of thousands of pounds that could be available to them. There is already a lot being said about the ‘availability bias’ and clients not valuing long-term guaranteed income as much as they do the transfer value. They have probably seen friends or colleagues transfer their pensions too and when the transfer value is probably worth more than their house, it is easy to see why heads can be turned and interest piqued.

Often a client might seek advice having already made their mind up that they want to transfer and almost want us to be order-takers.

As next generation advisers we have a valuable role to play in both educating clients about the risks involved, but perhaps more importantly, in understanding what they are really setting out to achieve.

I believe pension transfer advice can only really be given when you truly understand a client and their circumstances and that means digging deep into the true reasons behind that initial interest in transferring. In younger planners, I see a community of advisers who want to do this and build long-term relationships with clients delivering ‘proper’ financial planning.

Using technology

With the tools available to us today, showing the client the different potential outcomes of taking a scheme pension versus transferring into drawdown using cashflow forecasting and other simulation tools can be very powerful and give a lot of value. Younger planners are really well placed to make the most of the technology.

While pensions transfers is a hotly debated ‘should-I-or-shouldn’t-I’ area that can be time consuming, difficult and often very challenging, when you do pull all of the pieces together it can also be equally rewarding for the adviser and the client. 

Sam Binstead is a chartered financial planner and Chilvester Financial

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