Pension switching opportunities

28 May 2021
In our latest podcast, Craig Muir and Justin Corliss from our Intermediary Development and Technical team consider why now is an ideal time for advisers to discuss pension switching with their clients.

Listen to Craig and Justin as they explore pension switching opportunities, including reconnecting with dormant clients and some of the market forces driving the need to consider pension switching for clients.

JC - Hi everyone, I’m Justin Corliss from Royal London’s Intermediary Development & Technical team. Welcome to our latest podcast. In this podcast we want to explore pension switching opportunities. I’m joined by my colleague Craig Muir who is a Senior Pension Development & Technical Manager, Hi Craig.

CM – Hello

JC – Craig, can you explain why now is an ideal time for advisers to discuss pension switching with their clients?

CM – Yes, of course, I think there are definitely opportunities for advisers and their clients in this market. Perhaps the volatility in the market over the last year or so will encourage clients who may have been a bit reticent to switch or consolidate plans previously will be more agreeable to switching now. Perhaps their old and even their existing plans have been performing poorly, maybe not poorly enough to warrant a review but the current crisis has given them more time to consider their future income needs and now is the time for them to get their finances in order.
Just to make it clear up front, I’m not talking about pension transfers so this isn’t a DB to DC podcast which the Financial Conduct Authority defines as a pension transfer but defined contribution to defined contribution which the regulator defines as a pension switch.

JC – Can you give us some examples of where the opportunities and drivers for Pension switching are and some of the market forces driving the need to consider pension switching for clients?

CM – Sure, first up product governance or PROD as it’s affectionately known. This can absolutely be a driving force behind an adviser examining their client bank, reviewing existing arrangements and determining if some of the pension accumulation clients are mapped to a solution which doesn’t match the overall needs of that specific target group so advisers may need to consider a switch for them to one which does match.

JC – OK I get that, that can definitely be a driver to consider switching a client. Anything else?

CM – Yes, dormant pots and dormant clients. Advisers may have clients who have moved jobs a number of times and now have several dormant pots with old employers. They may even have an ongoing fixed charge and other high charges which are effectively reducing the value of these pots over time. These clients are likely to benefit from a switch.

Of course advisers may have dormant clients. Ones they haven’t heard from for a few years for whatever reason maybe they just wanted their pension set up on a transactional basis. Well I suppose this is as good a time as any to try and reconnect with them, especially on the back of the market volatility we saw in 2020, which is probably making them a bit nervous and they may even be reviewing their retirement plans –they may even have succumbed to the temptation to switch their funds at the bottom of the market and are now regretting their decision and their poor investment performance and are desperate for help.

I’d imagine advisers active clients will be in a similar position. Not about switching their funds at the bottom of the market as I’m sure advisers have explained about how volatility can be good for fund growth. No, more about them getting the jitters from the stock market and taking stock of their retirement plans as a result of COVID so may be more open to considering a pension switch (of course assuming it’s in the client’s best interests).

JC – Yeah, I can see how dormant pots and clients could be a good source for potential pension switching cases. Any other drivers you can think of?

CM – I suppose there’s poor service from providers. What I mean by that is we all know what happened to service levels when we went in to lock down last year and some providers reacted better than others to moving completely online but there were some providers who reacted really poorly and are still providing poor customer experiences to both advisers and their clients. So maybe there are better solutions out there for advisers and their clients.

I think there’s potentially an opportunity because of wake up packs. Remember providers are required to issue wake up packs from age 50 and then at least every 5 years until the entire pot has been crystallised. So there’s an action for advisers here, any client from age 50 will receive this new wake up pack therefore there is potential for them to re-engage with clients and arrange a review meeting with them. As part of this review, a pension switch may be considered. This kind of harks back to dormant clients.

And just one final thought, if advisers are aware of when their client’s mortgage will be paid off, and even if they don’t they could always ask them, or perhaps the client’s interest rate has reduced, then this could mean they have spare capital which they could use more tax efficiently by increasing contributions to their pension. Again another great excuse for contacting clients and discussing their pension plans which may include the benefit of switching. So for me there are lots of opportunities for pension switches, obviously as long as it matches the needs and objectives of clients and is in their best interests.

JC - Thank you Craig for joining me today, I think that’s given us quite a lot of food for thought. I’ve been Justin Corliss, your host for this podcast. Hopefully you’ll join us again for future podcasts. Thank you and Goodbye.

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