Pensions freedom is now over a year old. Those with defined-contribution (DC) pensions have a far wider range of options on what to do with their pension pots when they retire. Those with defined-benefit (DB) schemes don’t have access to these freedoms, but in most cases they won’t mind, because the advantages enjoyed by them (an inflation-indexed payout, often with spousal benefits, that would cost a fortune to buy on the open market) tend far to outweigh the benefits of pensions freedom.
There are exceptions, of course. If you’re in very poor health and have a limited life expectancy, you may want to switch to DC to access your cash early, or to pass it on to your family. However, you might find it tricky to do so.
The first step is to write to your pension scheme administrator to find out the transfer value of your pot, which will tell you the expected value of your pension benefits. If this is above £30,000, the Financial Conduct Authority requires that you get advice from an independent financial adviser (IFA) before transferring out.
And if the IFA doesn’t give you a positive recommendation – in other words, doesn’t advise you to make the transfer, reports The Daily Telegraph, most of the big providers of self-invested personal pensions (Sipps) won’t accept it.
One reader The Daily Telegraph spoke to said that she had “wasted” £1,000 on unnecessary advice, despite her relatively straightforward plan to consolidate two small DB pensions. Another catch is that many IFAs are reluctant to deal with DB transfer business – it’s a compliance minefield, and the risks involved in dealing with a client who later complains about being poorly advised are too high for many to take on.
One option is to deal with specialists such as Tideway Investment Partners or Intelligent Pensions, both cited in FT Adviser. Alternatively, says The Daily Telegraph, AJ Bell is one Sipp provider that will accept transfers without an IFA’s positive blessing – it would ask to see the advice but didn’t require that it be in favour of the transfer, as long as the customer understood the implications of making the move.
Parting advice from the former pensions minister
One casualty of Theresa May’s cabinet reshuffle was pensions minister Ros Altmann, who left her role this week – though not before she took the opportunity to launch a three-pronged attack on the government’s pension policies. Altmann, a respected industry expert who was appointed to the role following the 2015 general election, said that “short-term political considerations exacerbated by the EU referendum have inhibited good policy-making”.
In her resignation letter, Altmann called for a “radical overhaul” of pensions tax relief, arguing that the current system disproportionately favours high earners. In its place, she said, the government should implement a “one nation” pension, with a single rate of tax relief, that would see withdrawals taxed in later life, so people have a behavioural incentive not to spend the money too soon – a dig at the Lifetime Isa.
She also called for a major review of the funding of defined-benefit pensions, “given the risks of diverting corporate resources to one favoured group of workers”, and called for fair treatment for women in their 50s who have had their “state pension age increased at relatively short notice”. Altmann has been replaced at the Department for Work and Pensions by Richard Harrington whose more junior title, undersecretary of state for pensions, has sparked fears that pensions are not as high on May’s priority list as they might be.