Shortfalls in defined benefit pension schemes could provide a new business opportunity for advisers using the concurrency rules introduced on A-Day, says Skandia.
New disclosure rules brought in under the Pensions Act 2004 mean members of DB schemes should have been told by 22 September 2006 about the state of the scheme, including any deficits, and how much of the benefits they are entitled to will be paid if the company suddenly closes down.
And Skandia argues with around 26 million members of DB pension schemes potentially facing shortfalls in their company schemes, and around 89% of DB schemes in deficit during 2005, there is a significant opportunity for advisers to review a clients DB scheme, and if necessary use the new concurrency rules to help clients supplement their retirement income with another pension.
Nick Bladen, pensions marketing manager at Skandia, warns being a member of a DB scheme does not necessarily guarantee a comfortable retirement, and says it is essential clients seek advice to judge whether their pension is going to live up to its expectations and whether it will be enough to fund their retirement.
The insurer argues the potential shortfall facing DB members provides advisers with an opportunity to help clients make informed decisions about retirement by assessing the strength of the DB scheme and the size of any deficit; how adequate the proposed recovery plan to clear the deficit is likely to be; and whether clients are saving enough to meet their desired retirement income.
In addition Skandia says investing in an additional personal pension will allow clients to have more control over their investment strategy, along with more choice about the timing of their benefits and how they are paid, as the rules for defined contribution schemes are slightly more flexible than those for a DB scheme,
Bladen adds: “DB schemes may not be as secure as the client thinks and they should consider whether they should be making additional provision to supplement their DB provision. As with any other financial product, advisers need to help clients assess how close the match is between their aspirations and reality and take action to reduce any gaps.”
If you have any comments you would like to add to this story or would like to speak to its author about a similar subject, telephone Nyree Stewart on 020 7968 4558 or email [email protected]IFAonline
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