Defined benefit pension transfers: a practical guide for advisers
Good defined benefit (DB) pension transfer advice starts with assessing whether a transfer is suitable for your client.
Advisers should start from the assumption that a transfer isn't suitable, taking time to understand their client's objectives, evaluate the benefits and guarantees they may be giving up, and explore other options before making a recommendation.
This guide outlines a structured approach to DB transfer advice, including supporting vulnerable or insistent clients and maintaining clear records throughout your advice process.
Important
The Financial Conduct Authority (FCA) and The Pensions Regulator (TPR) say “it will be in most people’s best interests to keep their DB scheme”1
How to structure DB pension transfer conversations
Following a clear, structured process can help you assess whether a DB pension transfer is suitable for your client.
1. Understand why your client wants to transfer
Before looking at whether a defined benefit transfer is suitable, start by understanding what your client wants to achieve.
Some clients may have done their own research and decided a transfer is right for them, but general information won't take account of their individual circumstances.
Use open questions to understand their motivations, expectations and personal circumstances, for example:
- Why are you considering a transfer?
- Are you married or in a civil partnership?
- What are you hoping to achieve by transferring?
- What retirement outcomes matter most to you?
- Has anything influenced your decision to transfer?
- What other pensions and savings do you have?
2. Help your clients understand what they'd lose by transferring
Make sure your client understands the benefits they could give up by transferring out of their defined benefit scheme, like:
- a guaranteed income for life
- protection against inflation
- benefits for a spouse, civil partner or dependants
- protection from investment risk
- Pension Protection Fund (PPF) protection, where applicable.
Clear examples can help your clients understand the value of these benefits in retirement.
3. Explore alternative options to transferring
Think about whether your client's objectives could be met another way by:
- taking funds from other pensions
- using non-pension assets
- adjusting retirement plans
- reviewing retirement income needs.
Considering other options can help identify the most suitable way to achieve your client's goals, while leaving them with a guaranteed income for life.
4. Assess suitability
Whether a transfer is suitable depends on your client's overall circumstances, not just their pension. Think about their:
- current and future income needs
- family circumstances
- health
- tax position
- estate planning objectives
- investment experience
- attitude to risk
- capacity for loss.
You should only consider a DB pension transfer suitable if you can evidence it supports your client's financial goals and retirement needs.
What does the FCA expect from DB transfer advice?
The Financial Conduct Authority (FCA) introduced its DB transfer guidance, FG21/3 (opens in a new window) in 2021, to help firms understand their expectations when advising on defined benefit pension transfers.
The guidance sets out the importance of following a structured advice process and clearly evidencing how you reach your recommendations.
Good to know
The FCA’s defined benefit transfer guide (opens in new window) provides more information about the key considerations when thinking about a transfer. It can help your client understand the implications of a transfer and make an informed decision.
What does a good DB transfer advice process look like?
As part of your structured advice process, good typically looks like:
- understanding your client's circumstances and objectives
- assessing the pension benefits and guarantees
- considering alternatives to transferring
- assessing suitability
- making evidence-based recommendations
- communicating findings clearly.
How do I evidence a DB transfer recommendation?
Because a DB transfer involves giving up valuable features, including a guaranteed income for life, it's important to clearly document how you reached your recommendation.
Your suitability report should clearly explain the journey from fact-finding and analysis through to your recommendation, and why that recommendation is suitable for your client's individual circumstances and objectives. This typically includes:
- your client's objectives and priorities
- cashflow modelling and financial analysis
- risk and capacity for loss assessments
- details of all other pensions and savings available to support the client during retirement
- alternative options
- the pros and cons of each option
- the reason for the recommendation.
Clear evidence can help demonstrate that your recommendation is based on your client's circumstances and goals. The table below shows examples of weaker and stronger evidence.
| Weaker evidence | Stronger evidence |
| Client wants flexibility | Client values having flexibility with their pension over a guaranteed regular income in retirement |
| Client wants control of their pension | Client wants greater control over how and when they access their pension to support their retirement plans |
| Client wants to leave money to family | Client insists on leaving any remaining pension savings to their chosen beneficiaries, which isn’t possible under their current DB scheme |
| Client is comfortable with risk | Client understands they'd be giving up guaranteed benefits and taking on the investment risk themselves in exchange for greater flexibility |
| Client wants to transfer because of their cash equivalent transfer value (CETV) | Client has considered the scheme benefits they'd lose and believes the CETV offered will cover their needs in retirement |
| Client understands the risks | Client can explain the benefits and guarantees they’re giving up, the investment risk they’ll take and the income they’ll need to monitor at retirement |
| Client has other pensions and savings | Client has other pensions, savings or sources of income that can support them in retirement, meaning giving up their DB pension income is unlikely to have a significant impact on their financial security in retirement |
How do I record my client's understanding?
You should capture your client’s understanding in writing. Your client should be aware what their decision means before proceeding. Check they understand:
- the benefits they're giving up
- the risks involved
- other options available
- any areas of uncertainty.
Where possible, capture your client's understanding in their own words.
Insistent DB pension transfer clients
An insistent client chooses to transfer their defined benefit (DB) pension despite receiving advice not to and asks you to facilitate the transfer.
How can I show a DB transfer client has proceeded against my recommendation?
Document your advice process and keep clear records of:
- advice provided
- risks discussed
- client responses
- decisions made.
Clear documentation helps demonstrate that your advice process was thorough, fair and focused on your client's best interests. It also provides an audit trail showing why your recommendation was made and how your client reached their decision.
Identifying and supporting vulnerable clients
The FCA defines a vulnerable client as "someone who, due to their personal circumstances, is especially susceptible to harm".2
Spotting vulnerability is especially important when advising on a defined benefit (DB) pension transfer as clients are considering giving up a guaranteed income for life.
How can I spot a vulnerable DB client?
You can often spot a vulnerable client with these signs:
- poor physical or mental health
- cognitive impairment
- bereavement
- financial difficulties
- significant life events
- low financial confidence or capability
- difficulty understanding complex information
- urgency to access transfer funds
- wanting to proceed quickly without discussing risks, benefits or alternative options.
Clients can be vulnerable temporarily, permanently or because of certain life events. Spotting this vulnerability early helps ensure they get the support they need throughout the advice process.
How can I support a vulnerable client?
You may need to adapt your approach to help your client make an informed decision. You can make adaptations like:
- allowing more time for discussions
- avoiding jargon and using clear, simple language
- holding additional meetings where needed
- involving trusted family members or third parties where appropriate.
How can I help protect my clients from scams?
Defined benefit pension transfers are often targeted by scammers because of their high transfer values. You can help protect your clients from scams by telling them to watch out for common warning signs, including:
- pressure to act quickly
- unexpected contact about their pension
- offers of a free pension review
- promises of high or guaranteed returns.
If you spot any concerns, take the time to investigate before moving forward.
How does an adviser assess DB transfer suitability?
When assessing if a DB transfer is suitable, ask yourself these questions:
- Can my client's objectives be met without transferring?
- Does my client understand the benefits and guarantees they're giving up?
- Has their capacity for loss been fully assessed?
- Is there a clear and evidence-based reason for my recommendation?
- Have any vulnerabilities been identified and considered?
- Do they show any signs of being scammed?
- Does my recommendation support the client's financial goals?
Remember
Transferring a DB pension isn't right for everyone. The Financial Conduct Authority and The Pensions Regulator warn that "it will be in most people's best interests to keep their Defined Benefit pension."1
1 Financial Conduct Authority, Considering a pension transfer: DB | FCA
2 Financial Conduct Authority, Guidance for firms on the fair treatment of vulnerable customers
Frequently asked questions
Can pension flexibility outweigh guaranteed income with a DB transfer?
Sometimes. Greater flexibility may be valuable for some clients, but it should be compared against the security of a guaranteed income for life amongst other things, or if the client has sufficient other pensions and savings that can ensure they don't run out of money in retirement.
Should clients rely on their own research when considering a DB transfer?
Research can help your clients understand a DB pension transfer, but it doesn’t take into account their personal circumstances. Your knowledge can help them make an informed decision with personalised advice.
What's the most important factor when assessing a DB transfer?
There isn't one most important factor. A DB pension transfer should be assessed by considering the client's objectives, benefits, risks, alternative options and capacity for loss. Balanced against the FCA’s view - for most people, remaining in a DB pension scheme will be in their best interests.
Can I refuse to support an insistent client wanting to transfer their DB pension?
Yes, you can refuse to facilitate a DB pension transfer for an insistent client. If your recommendation is that a transfer isn't in your client's best interests, you don’t have to facilitate this for them.
What's the FCA's DBAAT?
The FCA’s DBAAT is their Defined Benefit Advice Assessment Tool (opens in a new window). It helps firms understand how they assess the suitability of defined benefit (DB) pension transfer advice.
