Advisers face a harder workload as they must now give 'even more' advice when handling defined benef...
Advisers face a harder workload as they must now give 'even more' advice when handling defined benefit (DB) transfers, according to Scottish Equitable's director of pensions development Stewart Ritchie.
In his latest "Ritchie Paper", he warns advisers working in the transfer market of the additional responsibilities they now face, and identifies new advice issues advisers should embrace when dealing with DB transfers.
Advisers should no longer only observe existing FSA transfer value analysis requirements, but should also evaluate the security of scheme benefits, he says.
As it stands, scheme members can end up with much less than the face value of their proposed defined benefit, regardless of whether the employer goes bust or not.
"Member security in private sector defined benefit schemes is becoming an increasingly topical issue. Scheme solvency is obviously a factor, but it is clear from some high profile cases such as Maersk, ASW and Blyth and Blyth that, under current legislation, members can lose much or all of their scheme benefits on wind up, whether or not the employer goes bust," says Stewart Ritchie.
"The strength of the defined benefit promise is at the heart of this, and it is essential that advisers assess the strength of the promise as part of the advice process"
On top of the regular transfer analysis, Ritchie encourages advisers to ask questions regarding the strength of the scheme, about the strength of the employer, and about the strength of the employer's covenant to the scheme.
By investigating actuarial reports, independent financial reports, or ratings and scheme documentation, an adviser should be able to answer these questions, he says.
A positive conclusion would leave the decision making process unchanged, Ritchie adds.
However, any weaknesses found should be strongly considered before making judgments.
"Advisers may conclude that the market for the transfer of preserved defined benefits has become so problematic that it is best avoided. However, for those who can adapt to the new transfer environment, the need for their services is greater than ever," Ritchie concludes.
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