In a recent interview with the Glasgow Herald, our Pension Specialist Michael Garvey, spoke about the increase in demand for independent financial advice – with pensions being a very common topic for clients to seek advice on…
Who are Glasgow Wealth and who are typical clients?
We are a small, full-service, independent financial planning and investment management firm based in Glasgow’s George Square. Simply put, we work with private clients to meet their long-term personal and financial aspirations.
Our clients are exclusively private families or individuals, though our advice will occasionally incorporate our clients’ business interests or trusts.
What do initial enquiries usually focus on?
Prospective clients will usually come to us with a specific issue they want to address. Recently, the main thrust of new enquires has been around defined benefit (final salary) pension transfers. Transfer values have increased markedly due to falling bond yields. In many cases, the values offered are thirty-to-forty times the annual pension the member is entitled to. This could seem to be offering a compelling case for transfer. It can represent a life-changing sum of money – often more than the value of the client’s home – and as such the decisions to be made can be daunting, requiring robust advice. The big decisions around retirement planning, sale of business, inheritance planning can be tricky and this is where we see most client engagement. Usually, there is a tax agenda at the heart of these scenarios – whether the enquirer knows it or not – and advice in this field is generally where we can add most value.
What has caused the increase in demand for advice?
There are four main reasons for the surge in defined benefit transfer enquiries. Firstly, media attention has brought the issue to the fore. High-profile cases covered in the press, such as BHS and Tata Steel, stick strongly in the mind. More recently, BT has started reconsidering whether to close their scheme to future accrual, as with Tesco and others. Secondly, there is a bit of a snowball effect. Those who have transferred recently tell friends and colleagues about their experience and their rationale for transferring. Certainly the majority of new enquiries that we see come from existing clients’ recommendations. Thirdly, ‘pension freedoms’ introduced in 2015 have given a lot more flexibility around when and how benefits may be taken from pensions. Coupled with significantly higher transfer values, this gives a much more robust framework to transfer and carve out the retirement that the client requires. Finally, if a transfer value is higher than £30,000, the member has to provide evidence that they have taken financial advice.
Is transferring a final salary pension risky?
Absolutely. Transferring a pension is a high-risk transaction. It is certainly not for everyone and often the best advice is to do nothing and remain within the security of the original scheme. This is the first thing that we will communicate to someone considering a transfer – they would be trading in the security of guaranteed, inflation-proof retirement income for at least some risk. Therefore, there should be a compelling reason to leave the security of the scheme, if indeed the advice is to transfer. For those who do ultimately transfer, it is often down to their ill-health or a requirement for better death benefits; poor scheme solvency; the need for greater income tax control in retirement; the ability to take higher income early in retirement; or perhaps the ability to take tax-free cash from the fund while still working to meet other financial aspirations. However, in many cases, the transition from an occupational pension to a personal arrangement becomes the client’s largest financial asset and so requires careful, professional management, both at the time and in respect of the ongoing fund management – particularly in view of where we are in the market cycle.
For more information, contact the Glasgow Wealth team on 0141 328 3916, use our enquiry form or email us at: welcome@glasgowwealth.co.uk.