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Pointers when paraplanning DB transfers

17 October 2016

At the recent Paraplanner Powwow, Benjamin Fabi, paraplanner with Jones-Sheridan, ran a workshop on DB pensions transfers, providing several top tips for paraplanners who find themselves having to deal with these requests.

We’ve broken down the workshop into three articles covering key areas of the process, which we will be running on the website this week.

Since pensions freedoms the volume of defined benefit (DB) transfers requests has notable increased. The driver of the increased demand for transfer, as experienced by workshop attendees, primarily was legacy planning and the new death benefit applicable to non DB schemes, allowing the potential for wealth to be cascaded down through the generations.

Fabi said that having been a pensions specialist for eight years, he has not changed the way he approaches DB transfers pre and post pensions freedoms.

“The process I have put in place over that time hasn’t changed but what has changed are the things that affect the decisions that come out of the process. The reason that DB transfers are so complicated is that the number of components that drop in to the process at the analysis stage are significantly larger than other pieces of advice.

“But if you have a process that sits underneath it, you shouldn’t be apprehensive about using that process to produce the right decision and the right outcome for that client,” he said.

Of the three elements to a DB transfer, collection of information, analysis of that information and presentation of the analysis and recommendation, the only process over which the paraplanner has direct control is the analysis. Paraplanners said the data collection by advisers in the fact find was sometimes lacking.

Fabi said the key to a good DB transfer process “is to make sure that the scrutiny you have as a paraplanner over the data collected is strong.

“If you have a good relationship with your adviser and you can have a conversation about what’s needed and what might be missing from a particular case, that is great. If you need to involve line management (if you have them) to ensure you get all the information you need, then do that.

“As paraplanners it’s crucial that we understand what we need to do the job properly – and to ensure we get that from the client, via the adviser, and also from the pension scheme.”

Top tips for collecting TVAS data

Obtaining correct formation from the pension provider was another area of challenge flagged in the workshop.

“The data you collect for the TVAS report will have a huge impact. If you are going to base your transfer recommendation on the basis of the death benefits, you have to be sure that the benefits in the scheme are being correctly described for the client,” Fabi stressed.

Consensus was that in-house scheme administrators were better to deal with than external administrators, particularly the larger companies.

Fabi said the way he deals with getting all the information he needs from scheme administrators is to send them a questionnaire with all the data he needs to know, with a covering letter. There are four key and specific things he asks for in the covering letter:

• Cash equivalent transfer value

• Summary funding statement

• Scheme booklet

• Leavers statement

When he receives the reply, which, he said, can often be just the scheme’s standard response, he takes the questionnaire that he needs completed, fills in the areas from the information in the response received and then goes back to the scheme for the specific data that is still outstanding.

“I’ve found that works quite well because it’s a good way of analysing what’s needed. Then you should only have to go back once more to get everything you need.”

Starting point according to COBS

Fabi pointed out that the one element of COBs that is specific to DB transfer, which is that the advice process must start on the assumption that a transfer is not suitable. “So as paraplanners we have to have a process that proves without doubt that it is suitable, which comes back to collecting and analysing all the relevant data.”

Examples of critical data flagged by paraplanners were:

• Objectives

• Attitude to risk

• Capacity for loss

• Mortality and health

• Dependents and family

• Overall wealth

• Tax status

• Tax mitigation

• Inheritance tax planning

• Use of lump-sum cash

• Strength of the employer and scheme.

Another pertinent area, Fabi added, was attitude of the client to their former employer. “The individual may know more about the employer and have concerns about the viability of the scheme that need to be listened to.

“These are the kinds of things that you need to ensure you have covered in the fact find because they are going to affect the overall objectives of the client,” he added.

Some paraplanners said they also had the client put the answers into order of priority.

Others added that they did not often use a pension transfer questionnaire these days, because most people were transferring into flexi-access drawdown schemes and the emphasis was now on lifetime cashflow planning.

Benjamin Fabi was the subject of the paraplanner profile in our July/August edition.

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