The “Defined Benefit Transfer” Pitfalls

Yes, our managing director was contacted by a recruiter and asked if he would be interested in becoming a “Defined Benefits Transfer Redress Specialist”! He kindly declined this lucrative offer.

Sadly, we know he could have made a lot of money in this role because too many well-meaning financial advisers who helped “clients” achieve their financial goals will now be getting sued by these “clients”! Because we have a compensation culture, a “nothing personal” and a “something for nothing” culture.

Many of these “clients” who wanted to improve their death benefit position or use the tax-free cash to fund objectives otherwise outside of their grasp will now simply claim they were duped. And many of them will win!

There will be many angles for the redress specialist to use to win compensation. But as a starting point, a positive answer to any one of three simple questions will do. If any is answered yes then they will win compensation:

Could you have deferred the transfer?

Could you have achieved your financial planning objective by another means?

Will you now have an income shortfall in retirement?

As a way of example, with the first question, any defined benefit transfer undertaken before age 55 from benefits have not been drawn yet will probably win. Poor health may be the only real defense that will stack up. The “I was worried about the scheme failing” argument will fail because in most cases the Pension Protection Fund option, a 10% haircut, is still deemed a better option in most cases than a transfer.

For the second, was there no viable alternative to a transfer? Really? No other assets, no ability to do a re-mortgage, no ability to take out a life cover, no ability to do a partial transfer?

The third is a real kicker! Especially, if you did not do a thorough examination of their income and expenditure, including that of their partners. In simple terms, if they can prove they will have insufficient Guaranteed income in retirement to meet their “core expenditure” then they can prove you should have declined to give transfer advice.

We have great sympathy for financial planners who will be caught out by the unscrupulous actions of “redress specialists” and “clients” who suddenly cannot remember any details of the discussions that took place pre-transfer. Which is why we would rather be on the side of helping them undertake defined benefit transfers that will stand up to scrutiny.

The “Defined Benefit Transfer

If you are a financial planner involved in the defined benefit transfer market then please feel free to get in touch and we can discuss how we can help your practice going forward.

If you are a financial planner worried about potential future claims then we can undertake a review of your files and point out any potential areas of weakness.