LATER LIFE PLANNING
AN INTRODUCTION TO ABRIDGED ADVICE , FOR DEFINED BENEFIT PENSION TRANSFERS
Alistair Mcqueen Head of Savings and Retirement Aviva
It is estimated that about one-infour employees in the UK have access to a defined benefit , or final salary , workplace pension 1 . That ’ s more than six million people 2 . This population has reduced in size since the turn of the century as employers have increasingly provided the alternative defined contribution , or money purchase style of workplace pension . But for the six million who continue to hold an open or deferred defined benefit pensions , they are typically of significant value .
The growth of defined benefit pension transfers Over recent years , the UK has seen an increase in people transferring their pension savings away from defined benefit pensions . Despite the significant value referred to above , there are justifiable reasons for transferring . Alternative pension arrangements can provide more flexibility in retirement ; they can provide an enhanced income if they are in ill-health ; or they can provide greater options when it comes to inheritance planning , all at the cost of giving up a guaranteed income . As you may well know , it ’ s a regulatory requirement that any scheme a client is looking to transfer from , valued at more than £ 30,000 , must seek regulated financial advice .
Regulated advice in this area is a specialist skill . This , combined with the often-significant amounts of money involved , means that this advice can come at a cost . Its value and the peace of mind is clear , but some have been put off due its higher associated costs . This has meant many have chosen not to proceed with advice , which means they haven ’ t been able to instigate the transfer .
The new abridged advice service Positively , the regulator has responded to this issue , and has endorsed a new transfer service called “ abridged advice ”. This new service lies between the provision of introductory information and the provision of full advice , with its associated costs . Abridged advice can be seen as a ‘ stepping-stone ’ towards the provision of full advice , for those who are actively considering a transfer . What does abridged advice entail ? To “ abridge ” means to “ shorten ”. And the new abridged advice service shortens what could otherwise be a long and deep-rooted full advice review and recommendation . Abridged advice will typically include the first steps of the full advice process only . This would include a fact-find , to understand the client ’ s current financial situation , and a risk assessment , to understand the client ’ s appetite and capacity for financial risk .
How does it differ from full advice ? Abridged advice stops short of making a recommendation for the next steps towards a full transfer . Instead , abridged advice is permitted to reach one of two conclusions . It can :
• provide the client with a personal recommendation not to transfer or convert their pension , if the adviser judges such a transfer not to be in their interests , or
• tell the client that it is unclear whether they would benefit from a pension transfer . If the client still wants to proceed with a transfer , the traditional full advice process must then be completed .
Given the shortened nature of the process , abridged advice will carry a reduced cost compared to that associated with full advice . But it should open more holders of defined benefit pensions up to the fact that there is merit in considering this further . Abridged advice is an optional service for regulated advisers to provide , at Aviva we have decided to offer it as part of all our standard defined benefit advice journeys . When faced with increasing options for our pension savings , it is positive we are also being presented with increasing sources of help . P
Advice from Aviva If you are interested in learning more about our defined benefit advice service or want to refer a case , you can visit our dedicated page in the SimplyRefer section of the website . Just so you know , our advisers can only recommend Aviva products and services .
1
Figure 1 : https :// www . ons . gov . uk / employmentandlabourmarket / peopleinwork / workplacepensions / bulletins / annualsurveyofhoursandearningspensiontables / 2019provisionaland2018finalresults
2
Spreadsheet , tab 3 shows 27.8m employees in the UK : https :// www . ons . gov . uk / employmentandlabourmarket / peopleinwork / employmentandemployeetypes / datasets / summaryoflabourmarketstatistics
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