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Can you afford not to transfer gold-plated pensions?


In Adviser Insight in Citywire's New Model Adviser (26th October) Stuart Fowler tells advisers 'if you advise clients who have deferred defined benefit (DB) pension entitlements, it is arguably negligent not to review the decision to retain the DB pension'. This stands the regulatory bias on its head, as the rules state that the working assumption is that a transfer from DB to DC arrangement is unlikely to be suitable. That excuses not even advising consideration of a transfer, effectively ignoring the option entirely.

In normal market conditions, this might be a reasonable default position, as few clients would lose out by the regulatory bias against transfer. But when Quantitative Easing has clearly led to distortion of normal relationships in public markets for both relative pricing and expected returns between asset classes, it is logical to assume that transfer values may provide more utility as a drawdown plan than the DB pension could. 'This is an exceptional and probably temporary situation.'

Not all advisers are qualified to advise on DB pension transfers. But transfer permissions are not the only requirement. It is also critical to have drawdown expertise. Drawdown in retirement is a special case of a general problem of managing money to provide path-dependent outcomes at defined dates and within agreed tolerances - such as meeting threshold levels, maintaining purchasing power, not being forced to cut income and not running out of money. To be comparable with the underpinning of a DB pension, these all need to be on very cautious assumptions. And replacing the DB underpinning means risk preferences will also alter compared with current preferences.

This is not guesswork. This is what stochastic (probabilistic) modelling is designed for. It's what Fowler Drew can provide. We can provide it for other adviser firms who are not qualified to do transfers or who want to outsource the drawdown management.


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