For many that Budget speech was expected to be pension free and it would appear that few people within the industry were aware of what was to be announced, or were consulted on the ramifications.
For consumers, it was hugely positive and is going a long way to change the negative perception of pensions.
One of the unintended consequences of this announcement has been the huge number of people transferring away from their gold-plated defined benefit (DB) schemes.
Many DB pension schemes are unable to offer members the flexibility of pension freedoms and so members have to transfer out if they need access to these features. These transfers need skilled and impartial advice, and rightly so, members don’t always know the benefits they may be giving up and so it is important all of this is explained and understood ahead of any decision to transfer out.
In some cases, consumers who have already decided to transfer have become quite frustrated with schemes and advisers, perceiving the need for advice and paperwork as hindering their wishes.
SIPP industry boon
The self-invested personal pension (SIPP) industry has benefited greatly from the introduction of pension freedoms, not only are current clients remaining invested for far longer, or passing the pension assets down through the generations, but a significant number of the transfers from DB pension schemes are to SIPPs. This, of course, makes perfect sense, as a SIPP is the most flexible pension product on the market.
Industry data suggests the number of transfers to a SIPP have doubled since the introduction of pension freedoms and that the value of these transfers have more than doubled.
What members, advisers and SIPP providers need to be careful of is that the transfer is being made into legitimate and suitable investments.
Unscrupulous conmen see the pension transfer market as an easy way to scam people and they always seem to be one step ahead. Their marketing is very clever and believable and it is all too easy to be taken in. Once these scammers would target SIPP providers and advisers directly, but now they have moved to target the pension client directly.
More education is needed to help pension members make the right decisions and avoid being scammed.
There appears to be no slowing of the growth in SIPPs and while some of this is down to the DB transfers, it is also the growing long-term saving trend that has been encouraged by the introduction of pension freedoms and the flexibilities these offer.
For advisers, this area offers an excellent business opportunity but it is important to partner with a firm that is not only financially strong but is committed to the market, you don’t want to end up explaining to a client why the firm you recommended has been acquired and that fees will increase while service levels fall.
Nigel Bennett is sales and marketing director at InvestAcc