Is the 3 month pension guarantee period enough time?
Defined benefit (final salary) pension transfer members are entitled to one free Cash Equivalent Transfer Value (CETV) each year. The CETV is the amount a scheme member can transfer from a DB scheme in lieu of their ‘frozen’ pension income benefits.
Once a transfer value is calculated and quoted to a member, it is guaranteed for a period of three months. Is that enough time to make an informed decision about your financial future?
Taking regulated advice
Most are now aware of the advice requirement for pension scheme benefits. Where pension holds ‘safeguarded’ benefits, it requires the advice of an FCA regulated Pension Transfer Specialist in order to be transferred. This is for good reason; to protect customers from scams, pushy salespeople and potential negligence in their own understanding of what they have in place. However, for expats in particular, FCA regulated specialist advice can be hard to find. By the time one’s decided to pay for advice, they have probably already eaten into the 3 month time limit.
It is best to find a pension transfer specialist before you apply for your CETV. While you may not need their help yet, ensuring an adviser is ready and able to help is certainly a key step. For those living abroad, finding a specialist can be harder than in the UK.
Finding the right specialist
FCA regulated pension transfer specialists are a rare breed. The FCA’s focus on defined benefit pension advice has scared away many firms.
The increasing cost of advice insurance for specialist firms is also impacting their ability to offer a cost-effective, yet profitable, service. The market is unfortunately now littered with complaint firms.
Customer protection & contingent advice
Recent FCA publications have strengthened the protection of customers, with contingent charging now banned. Contingent charging is where a customer must agree to pay a fee for advice, whether or not they proceed with the planning presented to them.
Contingent charging is already a point of contention. If you were offered advice where you only pay if you proceed with the proposal and took out a new plan, would you prefer this to paying out of your own pocket? For some, the cost of paying out thousands of pounds in order to be told not to transfer a pension is too high a risk.
Many people we’ve spoken to feel the FCA’s approach to contingent charging is patronising. It is clear the FCA don’t like a customer being put under pressure in order for the advisory firm to make money, it does belittle that individual’s ability to make their own decision and be grown-up enough to decline the changes if they don’t want to go ahead.
Don’t feel under pressure from the CETV guarantee time limit
The three-month guarantee period begins at the point of calculation. If you’ve received a guaranteed CETV, take your planning seriously and focus on what’s right for you. A pension transfer specialist must not put you under time pressure, but is also not responsible if you miss the deadline.
In order to ensure you are able to take advice, understand and consider that advice, complete the pension transfer paperwork and have this checked by all associated parties, it’s important you approach an adviser in good time. We would recommend taking advice within the first month of that guarantee period in order to be confident of meeting the deadline.
What to do if you miss your guarantee period
If you’ve missed the deadline, there are still options. It’s better to miss the CETV expiry date than make a poor or rushed decision about your long-term financial security.
Firstly, contact your scheme administrators or ask your adviser. The scheme may agree to extend your guarantee period. Often schemes offer a month extension if you confirm you’re taking advice.
If an extension can’t be secured, take a step back. Review the advice you’ve been given and take the decision seriously. If you’re certain a transfer is best for you, apply for a recalculated CETV. Most schemes ask for a small administration fee. In our experience this is usually a cost of £150 to £500. If they quote toward the high-end, query this.
A new Cash Equivalent Transfer Value calculation could be higher or lower than your original quote. A pension calculation is not determined by the opinion of the pension trustee. It must be fair and equal for all pension members. Most recalculations within a short time period will be similar, but if your pension is of a very high value, even a minor percentage adjustment can mean a loss of thousands of pounds.
Let us introduce you to a UK Pension Transfer Specialist
We operate a panel of UK specialist firms offering defined benefit transfer advice. Dependent on your location, we will find the right firm to fit you, and ensure you gain regulatory protection.