“Transferring away from a defined benefit or ‘final salary’ pension is a decision that could have huge repercussions in terms of your future lifestyle, particularly when you are very elderly. Therefore it is vital to seek professional financial advice. The decision not to transfer is often the right one, but financial advisers can face scrutiny long after the advice is given even when recommending not to transfer if someone could have got a high transfer value at that time.
“Today’s package of changes announced by the Financial Conduct Authority are sensible, measured and should give consumers increased confidence in any advice they receive in this area, as well as clearly laying out what is expected of advisers, who must focus rigorously on the suitability of their advice whether the advice is to transfer or to stay put and keep comprehensive records.
“Among the changes is the requirement for financial advisers who advise in this area to have a higher level of investment knowledge and requires them to take a new exam. With volatility back with a vengeance investment knowledge for those approaching or in retirement is more important than ever.
“Anyone considering a pension transfer needs a full understanding of the responsibilities they will be taking on. In particular it means managing the pension investments on an ongoing basis will be your responsibility, as will bearing all the investment risk through the ups and downs of financial markets. That job would continue during your retirement years, unless you purchased guaranteed income via an annuity, which could prove expensive compared with the guaranteed income from your defined benefit pension.
“The recent policy statement is a second in a series of regulatory changes to advice in this area. Changes announced earlier this year mean clients will receive a clear comparator of the transfer values offered by their DB scheme and an estimate of how much they would need to replace that income.”