DB transfers will ‘come to a head’ when stockmarkets fall

Defined benefit transfers will “come to a head when stockmarkets fall”, an expert on a roundtable of pension specialists has predicted.

Speaking on a roundtable hosted by Nucleus, Tuto Associates director Tim Eadon said that he doubts consumers really understand the investment element of a transfer, and that they will realise they could run out of retirement money when the markets fall.

Pensions freedoms and changing market dynamics have “led to clients not understanding the consequence of a transfer”, according to Eadon.

He said: “Pre-freedoms, a small percentage of your business might have drawdown cases, typically for high-net-worth clients and sophisticated investors … 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".

“That, for me, is part of the fear. Do clients properly understand the investment element, and the fact they are coming from a guaranteed space and going into something which is clearly no longer guaranteed? Are the investments appropriate? Are they working for them? Do they even understand them? That’s going to be part of the problem.”

The panel agreed that there must be more clarity on underlying investments, as many people will not have considered “what an investment is” and that annual client reviews are becoming more important particularly when a client is entering drawdown.

Technical Connection head of pensions strategy, Claire Trott, said: “There are so many different models out there. 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.”

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