UK Defined Benefit (DB) Pension Transfers
If you have a UK Defined Benefit (DB), Final Salary or other pension with safeguarded benefits and are considering transferring your pension, there are important UK advice requirements that may apply.
Since 6 April 2015, UK legislation has required members with safeguarded benefits valued at more than £30,000 to obtain appropriate independent financial advice before the pension scheme can proceed with a transfer to a defined contribution arrangement.
This requirement applies whether you live in the UK or overseas, including Australia. The advice must be provided by a firm authorised by the UK Financial Conduct Authority (FCA) with the appropriate permission to advise on pension transfers.
What does the UK DB advice involve?
Transferring out of a DB pension is a significant decision because you are generally giving up valuable guaranteed benefits in exchange for a pension fund whose future value and income will depend on investment performance.
The UK pension transfer adviser will assess whether transferring is suitable for your individual circumstances. This involves considering factors such as:
- the benefits you would give up by transferring;
- your personal and financial circumstances;
- your retirement objectives and income requirements;
- your attitude to investment risk;
- your capacity for loss;
- your health and life expectancy where relevant;
- the transfer value offered by the UK scheme;
- the benefits that could potentially be achieved following a transfer; and
- the specific receiving pension arrangement, investments, risks, costs and charges.
For overseas transfers, the FCA expects the UK adviser to take account of the specific receiving scheme and the investments into which the transferred pension will be placed, rather than assessing the transfer using generic assumptions.
The UK adviser must also consider whether remaining in the DB scheme is likely to be in your best interests. The FCA considers DB pensions to provide valuable guaranteed benefits and states that most consumers are likely to be better off retaining their DB pension.
Who provides the UK DB advice?
Veyron Wealth Group is based in Australia and can assist with your Australian financial planning and the proposed receiving arrangement.
However, where UK legislation requires independent DB transfer advice, that advice must be provided by an appropriately FCA-authorised UK firm with permission to advise on pension transfers.
Veyron Wealth Group has relationships with UK-authorised pension transfer advisers and can facilitate an introduction to an appropriate adviser to complete the required UK DB transfer advice.
The UK adviser is responsible for the UK pension transfer advice, while Veyron can assist with the Australian aspects of the proposed strategy and receiving arrangement.
How much does the UK DB advice cost?
The cost of UK pension transfer advice depends on the complexity and value of the pension and the work required.
UK DB transfer advice fees start from approximately £3,500 for the UK advice component.
The exact fee will be confirmed by the UK FCA-authorised adviser before the advice process commences.
What about your Cash Equivalent Transfer Value (CETV)?
A Cash Equivalent Transfer Value (CETV) is the amount offered by your UK DB pension scheme if you choose to transfer your pension benefits.
A CETV normally has a three-month guarantee period from the relevant calculation date.
Because the UK DB transfer advice process can be detailed and may involve obtaining information from the UK pension scheme, it is important to consider the timing of your CETV carefully.
If a CETV has already been issued, the advice and transfer process will need to be managed within the applicable guarantee period where possible.
If the guarantee period expires before the transfer can be completed, a further CETV may be required. The new value may be different from the original quotation and the scheme may charge for additional calculations in certain circumstances.
For this reason, we recommend speaking with us before requesting a CETV, where possible. We can help you understand the process and coordinate the UK advice requirements before you commence the transfer process.
If you have already requested or received a CETV, this does not necessarily prevent a transfer. We can assess the remaining timeframe and help coordinate the next steps.
Why is specialist advice important?
A UK DB pension can provide a guaranteed income for life together with valuable benefits for a spouse or dependants.
Transferring means giving up these guarantees and taking on additional risks, including:
- investment risk;
- longevity risk;
- the risk that investment returns are lower than expected;
- the risk that retirement income may be insufficient; and
- the possibility that future retirement products or investment solutions may not be available or cost-effective.
The FCA therefore regards DB transfer advice as a specialist area requiring appropriate expertise and controls.
Transferring a UK DB pension to Australia
For an Australian resident, a UK DB pension transfer can involve both UK and Australian financial, tax and superannuation considerations.
The UK adviser considers whether transferring the DB pension is appropriate under UK pension transfer rules. Your Australian adviser should separately consider the proposed Australian receiving arrangement, investment strategy, tax implications and how the transferred pension fits within your broader retirement strategy.
The FCA specifically recognises that people living overseas may need advice from both a UK pension transfer adviser and an overseas adviser. The advisers should work together where necessary so that the proposed transfer and receiving arrangement are properly considered.
Thinking about transferring your UK DB pension?
Don’t request a CETV without first understanding the advice and transfer process, if you can avoid it.
A UK DB pension transfer can take time and involves several parties, including your UK pension scheme, UK pension transfer adviser and Australian adviser.
Contact Veyron Wealth Group before commencing the process and we can explain the steps involved, introduce you to an appropriately authorised UK pension transfer adviser and help coordinate the Australian aspects of the proposed transfer.
Veyron Wealth Group has a panel of Authorised UK approved advisers & can facilitate the process of obtaining your DB Report.
We strongly suggest you do not request a Cash Equivalent Transfer Value (CETV) from your UK Defined Benefit/Final Salary Scheme as you will trigger a 90 day Guarantee Date (GD the day the transfer quotation is issued.
The DB Report process can be lengthy and if the Guarantee Date is already triggered, we cannot guarantee all the various steps to secure your CETV for a transfer can be achieved in a shortened time period.
In the absence of securing a further CETV, the UK Trustee may impose restrictions or fees.
Therefore it is important to use a ROPS specialist adviser prior to triggering the Guarantee Date which gives you the best chance of meeting the 90 day deadline.
“Drew Hawkins is one of Australias most experienced advises with regard to UK pensions transfers to Australia with over 24 years experience”
David Ford – Founder & CEO of Pension Transfers Direct Pty Ltd
★★★★★ 5/5
