On the second anniversary of pension freedoms, it is impossible to ignore the fact that this radical policy has had almost as big an impact on financial services as that revolutionary Act in 1774.
Pension freedoms has also dramatically increased the demand for financial advisers, placing a great responsibility on us all to ensure that clients fully understand the implications of the choices they make.
When someone is exploring the possibility of making a transfer from a defined benefit scheme, I believe we need to be ultra-cautious.
In certain situations, a transfer in whole or part can be good advice, particularly with some of the multiples being quoted, or when personal circumstances make some of the defined benefits irrelevant. These are the exception rather than the norm, as leaving a defined benefit scheme is rarely a good idea. By making this clear to your potential client at the outset, you clearly demonstrate your determination to act in their best interests. If the client chooses to ignore your advice and proceeds with a transfer, you will at least have a clear audit trail demonstrating you did the right thing.
“Doing the right thing” is somewhat easier when dealing with defined contribution transfers. However, the danger of clients cashing in for a short-term gain and suffering long-term losses still looms large. It is essential that every step of the way is documented, and clients are alerted to the virtual certainty that they will enjoy a lower standard of living in retirement. The reality is they cannot spend the same money twice.
A further and particularly positive impact of pension freedoms is the findings from Aegon, that more than 5m people have increased their savings since 2015 and that those seeking professional financial advice have doubled in the past year. Advisory firms are busier than ever; it seems more clients are going to enjoy a happier retirement, as well as potentially accessing some of their savings, giving them the best of both worlds.
If this becomes a continuing reality, the pension freedoms legislation of 2015 will indeed become as important to savers as the Life Assurance Act of 1774.
Ken Davy is chairman of SimplyBiz