Pension transfers and switches

Paul Taylor ACII FPFS

This presentation is directed at professional financial advisers. It should not be distributed to, or relied upon, by private customers

Qualified Income

2

Today

• Why enter the transfer market

• The transfer drivers

• Opportunities

• Pension Switching

• How AEGON can help

What makes up the transfer market?

Occupational transfers

Defined benefit

Money purchase

Personal pension switches

Premium redirection

Benefit Crystallisation

4

Pension transfer market

£1.3 trillion in occupational schemes*

£130 billion contract DC*

£130 Billion contract – unbundled*

50% in payment**

41% deferred**

•*UBS 2008

•**The Pensions regulators purple book 2009

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Pension transfers - The objections

There’s a recession, a credit crunch.

I’m going to defer any action until things are clearer

The FSA & Compliance issues

I don’t do pensions transfers – they’re so complicated

6

Transfers pre - 6/4/2006

Controlling Directors

High Earners >45

Appendix XI tests

TFC certificates

Early vesting certificates

PN10.34

Lump sum death restrictions

7

Transfers post - 5/4/2006

Controlling Directors

High Earners >45

Appendix XI tests

TFC certificates

Early vesting certificates

PN10.34

Lump sum death restrictions

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Transfer freedom

No restrictions, tests or TFC certificates

But must be a ‘recognised transfer’

Partial and/or Split transfers possible

Beware - Partial transfer if TFC>25%

Not treated as contribution - no impact on annual allowance

Not crystallisation event unless to overseas

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Pension transfer market

You have to be authorised to do Occupational pension transfers.

So…..

Are you authorised?

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Pension transfer market

Key pad question…

Are you authorised to do Occupational pension transfers?

Yes. Press 1

No. Press 2

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Pension transfer market

Key pad question…

Do you want help to become authorised to do Occupational transfers?

Yes. Press 1

No. Press 2

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Pension transfer market

Refer to authorised IFA

Use a Pension transfer Bureau / Service

Engage service of / register 3rd Party as a transfer specialist

Ultimately…… Get qualified & authorised

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The transfer market drivers

Early leavers

Members want more control & choice

Wider & more suitable benefit choice

Pension sharing orders

Overseas transfers

Scheme reconstructions

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Leaver options

Preserved pension

Transfer

Early retirement

New employer's scheme

PP/stakeholder

s32

Refund of contributions

Overseas?

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Preserved pension

May be best option

Some considerations

Revaluation of Defined benefits

Scheme funding position

Benefits on offer & when payable?

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DB transfers - TVAS

Report details:

Investment return to match scheme benefits at retirement

Analysis of immediate & long term death benefits

Comparison of TFC

Takes charges into account

Based on various assumptions

Contrasts DB, s32 & PP

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Wider benefit choiceIn

com

e r

isk t

o c

lien

t

Investment control

DrawdownFull income risk with

policyholder.Potential for investment

growth.

AnnuityNo income risk with

policyholder.No potential for

investment growth.

Income for LifeGuaranteed income =

less risk.Potential for investment

growth.

Risk

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Transfer considerations

Benefits gained or lost

Impact of future annuity rates

New employer scheme

Transfer club

Charges

Investment choice

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Transfer considerations

Transfer value offered

State of health

Term to retirement

TFC & death benefits

Attitude to risk and personal circumstances

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Transfer reasons

Wider investment choice

Consolidation

Lower charges

New job

Poor administration

Benefits, shape and availability

Will the client likely be better off?

Reasons to transfer

46%

28%

4%

10%

8%4%

1

2

3

4

5

6

Better fund performance

Consolidation

Lower charges

Flexibility

Moved Job

OtherAEGON pension transfer survey July 2007

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Transfer opportunities

Pensions & divorce – sharing orders

Court order specifies % of CETV to be deducted

Private sector schemes must offer transfer

Advice needed by both parties

Opportunity to advise & build professional connections

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Transfer opportunities

Occupational scheme reconstructions

Advice to employer

How to secure benefits outside scheme

How to protect members & avoid comeback

Advice to member

Members being forced out

Accept trustees proposal or choose alternative?

TFC protection minefield

FSA Switch Review December 2008

FSA switching review

30 Firms

25% had 33% + cases judged unsuitable

50% had up to 33% unsuitable

Only 25% had all cases judged as suitable

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Why Unsuitable?

More expensive than the existing scheme or stakeholder

Asset allocation out of line with risk profile of client

Lack of investment reviews

Loss of benefits

Source: FSA Switch Review December 2008

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Flexible Pension Plan – Why Suitable

Extra product costs without good reason

- FPP vs Stakeholder /RU 64 /Sandler shape

Funds unsuitable

- FPP – fund choice/cost / IRP /automated rebalancing /asset allocated model portfolios .

Ongoing Reviews

- Portavista FPP - Online services

Loss of benefits

- FPP GAR – Income for life

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In summary

Buoyant transfer market

Still complex subject

We can help

Important information

This information is based on AEGON Scottish Equitable’s understanding of current legislation, taxation law and HM Revenue and Customs practice which may be subject to change.

This presentation is for professional financial advisers only. It isn’t for private customers and shouldn’t be given out to, or relied on by, them.

AEGON UK plc, Registered Office: 90 Long Acre, London WC2E 9TF.

Registered in England (No. 3679296). Member of the AEGON Group. www.aegon.co.uk