DB transfer debate to 'come to a head' when stock markets fall

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The debate around defined benefit (DB) pension transfers will "come to a head when the stock markets fall", according to a panel of retirement specialists.

Tuto Associates director Tim Eadon said when the markets fall, consumers who have transferred out of a DB scheme and started accessing their pot will realise they may run out of money in retirement.

He said the changing dynamics of the market due to pension freedoms has meant there is a real risk of clients not understanding the consequences of a transfer.

"Pre-freedoms, a small percentage of your business might have drawdown cases, typically for high-net-worth clients and sophisticated investors," he said. "The government then literally opened up this whole market, without the product set really changing at all.

"A whole host of people have been thrown into this investment quagmire and been left thinking: ‘I really don't understand what on earth is going on.'"

Eadon said he also had concerns over whether clients properly understand the investment element, and whether they understand that they are moving away from something guaranteed.

Meanwhile, Technical Connection head of pensions strategy Claire Trott said a transfer cannot be undertaken without mentioning the underlying investments "because there are so many people out there who have a DB scheme who have never even considered what an investment is".

She said advisers must know where the dividing lines are with investments when it comes to outsourcing any DB transfer business.

"There are so many different models out there," she said. "I'm not saying any of them are right or any of them are wrong, but if you're used to dealing with one who does the whole service and all the investments, and then you go to another one and they're not doing the investment side, then you need to take responsibility for that."

Annual client reviews
In order to ensure advisers get a DB transfer right, Eadon said, annual client reviews have become far more important, particularly when a client has moved into drawdown.

Advice firm Grayside Financial Service managing director Mike Seddon agreed. He said: "For DB transfers going into drawdown, it is absolutely critical that clients are engaging with their adviser, on at least an annual basis."

The comments were made during a roundtable hosted by platform Nucleus on DB transfers.