Alongside the Freedom and Choice provisions was a requirement that members who have a transfer value over £30,000 must take independent financial advice from a suitably qualified individual before they are able to transfer their benefits out of a defined benefit (DB) scheme.
Historically, many independent financial advisers (IFAs) looking at DB to defined contribution (DC) transfers focused on the critical yield test - whether the return that a member would need to achieve in the DC arrangement to replicate their DB benefits with an annuity, was an acceptable risk.
More recently (and recognising that the reason many members are considering a transfer is to access their benefits in a different form, rather than an attempt to replicate their DB pension) IFAs now need to take a far more holistic view when giving advice.
As well as financial factors such as other pension entitlements and other assets, IFAs will consider issues such as the ability to manage investments and risk, health and life expectancy, the likely needs of dependants, and other lifestyle factors.
The availability of quality advice on pension transfers has no doubt increased in recent years. But for every IFA out there with expertise in pension transfers (and there are plenty), there are others who do not have the necessary experience.
It therefore pays to do your research - whether as an individual or as a trustee or sponsor looking to facilitate access to good advice for your members.
Providing members with access to personalised information via a range of channels will help ensure more members engage in this important decision and therefore make an informed decision at retirement.
While the level of support that should be made available to members could be debated, it is widely believed that for a decision of this importance, the more support that is available to members the better.
Furthermore, for trustees, sponsors and the wider pension industry, more support reduces the risk of members receiving poor advice and making decisions that they later regret.
In order to give an insight into, we spoke to three different IFAs that Aon have worked with in the last year.
For more on how schemes are responding to ‘Freedom and Choice', and read an exclusive insight what the IFA process looks like download Aon's Guide to Member Options here.
Gemma Cowan is a senior consultant at Aon