Equally, the need for the pension to be fully secured at the outset of retirement is not always a ‘must have’. If the pension is only a modest part of the client’s overall income in retirement it is doubtful whether buying an annuity at current rates would be right for them. Anyone going into drawdown has the option to switch to annuities later in retirement, so it is not a case of ‘never the twain shall meet’. In practice, annuities are a better deal at older ages and many investors also qualify for enhanced terms on health grounds. Ultimately annuities are an insurance against longevity (with inflation protection an optional ‘add on’) and for most people it is not so much whether to annuitise, but when.
Critical yield is still important, especially as a method of assessing whether the transfer value on offer represents good or bad value for money. The range can be considerable from low single digit to double digit returns. But CY must be viewed in the context of the client’s overall needs, circumstances and objectives. Ruling out transfer on the grounds of critical yield alone is not treating customers fairly. Advisers who do so may find themselves with a problem down the road where the report failed to consider all relevant factors.
Provided the client’s overall needs and circumstances have been taken into account, and the advice can be demonstrated to be most likely in the client’s best interests, if the client understands the risks either way, there should not be a problem. File records will be scrutinised on that premise, and everything needs to be fully documented and detailed. Advisers should never take the risk for their clients and rely solely on CY analysis.
Intelligent Pensions has decided not to implement transfers on an ‘insistent customer’ basis. This is at the option of the adviser, and there is no requirement under the rules to accommodate such cases.
Where a firm does decide to accept such business, the FCA states there are three key steps. First, you must provide advice that is suitable for the individual client and this advice must be clear to them. Second, you should be clear with the client what the risks of the alternative course of action are. Third, it should be clear to the client that their actions are against your advice.
The fact that Intelligent Pensions has decided not to accept business on an insistent customer basis does not mean there are not cases where our advice can change as result of the client coming forward with further statements or information. Indeed, we consider it to be treating customers fairly that we invite them to do so where our recommendation is against transfer.
