Reacting to today’s FCA consultation paper on pension transfers, Andy Bell, actuary and chief executive of AJ Bell, comments:
“The current assumption that defined benefit transfers will be unsuitable is a view from a bygone era and does not reflect reality. The removal of this starting assumption would therefore be a positive development and it is right that advisers should assume a neutral starting position.
“With defined benefit pension scheme members who have left the employer being offered multiples of their deferred pension not seen before, many people will see transferring as a sensible option. Extremely high transfer values, poorly funded schemes and the vast improvement in death benefits post transfer are still uppermost in people’s decision to transfer.
“Whilst it is good that the consultation will be reviewing the TVAS process, it appears that the proposed transfer value comparator (TVC) shares the same flaw as the current transfer value analysis (TVA). They put annuity rates at their heart, when annuities are wholly irrelevant, unless someone wants to take a transfer value now and then buy an annuity at the point of retirement, which would be perverse.
“The analysis needs to reflect the substance of the transaction in hand. Our preference would be to project the income that can be generated from the transfer value from normal retirement age, using sensible growth rates and a standard table of sustainable income drawdown rates and then compare this level of income with that being foregone.”