Waiting for Defined Benefit flexibility

Waiting for Defined Benefit flexibility

According to recent KPMG and ABI research, since the changes to Pensions rules came in on 6 April 2015, 71 percent of insurer customers who decided to take their pension took it in cash. These have typically been smaller pots and only 31 percent of the encashed amount was explicitly as a result of the new pensions freedoms. This tells us pension freedoms are attractive to many Defined Contribution (DC) members.

Director, Pensions

KPMG LLP (UK)

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Waiting for Defined Benefit flexibility

So what of DB?

You may remember that back in March I wrote that I believed DB members will be the biggest losers from pensions freedom

We have seen small steps in the right direction. The Treasury announced a Financial Advice Market Review in August 2015. One of its aims was to examine ‘the regulatory or other barriers firms may face in giving advice and how to overcome them’.

The Financial Conduct Authority (FCA) has also recently published a consultation document titled ‘Pension reforms – proposed changes to our rules and guidance’. It covers some helpful topics: 

  • Should advisers be more open minded towards DB to DC transfers for members able to retire immediately?
  • How should the transfer value analysis that Independent Financial Advisers (IFAs) are required to carry out be improved to reflect pension freedoms?
  • How should insistent client regulations be amended to better facilitate these transfers? 

Perhaps more important is what we’ve not seen, such as the promised consultation on conversion of DB benefits. This means DB members wanting to access flexibility would not have to transfer to DC. With the green paper on potential changes on the taxation of pensions, you can’t help but wonder whether the Treasury has moved on and we never will.

For DB members, the situation remains frustratingly unchanged.

DB members should take advice before transferring to a new pension arrangement, as changing from DB to DC will not be risk-free. However, the advice from IFAs must be fit for purpose and clearly articulated. After all, anyone who has saved for a pension has the right to spend it how they wish. Gaining this basic entitlement is evidently not as easy as it should be for DB members. That is wrong.

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