View more on these topics

DB transfer showstoppers

By Jim Grant, Senior Product Insight & Technical Support Analyst

Transfers from defined benefit (DB) schemes are a bit of a hot topic just now. In this article we look at a couple of factors that could prevent a transfer from happening

Equalisation of pensions

Prior to the Barber case in 1990, DB pension schemes typically provided pensions at age 60 for women and age 65 for men.  After Barber, schemes had to change their rules so that benefits were paid at the same age for men and women. They could be equalised at the higher age or any age between the two ages but, until a pension scheme got around to changing its rules, they were deemed to be equalised at the lower age.

The scheme rules will state the legal process by which the rules can be changed. So, if the proper process isn’t followed, it could be that the scheme thinks it’s equalised at, say, age 65, when in fact it could be that the lower age applies.

Most providers therefore need confirmation that benefits in the scheme have been equalised before the transfer can go ahead, otherwise the transfer value may not reflect the correct value of the benefits.

Usually it’s a formality but sometimes the ceding scheme isn’t able to provide the necessary confirmation and the transfer can’t go ahead.

Guaranteed minimum pension (GMP)

DB schemes that were contracted-out before 1997 have to provide a GMP roughly equivalent to the earnings-related state pension the member would have received if they’d stayed in the state scheme.

This runs alongside the scheme pension and, at age 60 for women or 65 for men, the higher of the two pensions has to be paid.

In a transfer, the cost of the GMP at the relevant age has to be covered by that part of the transfer value monies that can be used for this purpose. Often it’s not, because the cost doesn’t actually have to be met until age 60/65.

Post-1997 funds (when GMP stopped accruing) and additional voluntary contributions (AVCs) can’t be used to cover the GMP cost.

If the GMP cost isn’t covered the transfer can’t happen, so a receiving scheme needs confirmation that the GMP cost at 60/65 is covered now by that part of the transfer value that can be used to cover it (also known as the reserved amount).

So, just because the total transfer value is higher than the GMP cost at age 60/65, it doesn’t necessarily mean that the reserved amount is high enough.

If the cost isn’t covered the transfer can’t go ahead unless the ceding scheme is willing to increase the transfer value to the point that it is covered.


Advice or guidance? That is the question

The Retail Distribution Review (RDR) brought many benefits to the UK pension industry, but it also created an advice gap, resulting in consumers with the smallest funds struggling to access advice at a suitable price By Justin Corliss, Business Development Manager The Financial Advice Market Review (FAMR) produced in March 2016 aims to remedy this, […]


Trust me, I’m a provider

By Craig Paterson, Underwriting and Claims Philosophy Manager, Royal London Hard-hitting headlines “Dying mother of two is refused life insurance payout.”1 “What a way to treat a dying man: Grandfather refused life insurance claim.”2 “A widow betrayed by a life insurance company.”3 With headlines like these, it’s no wonder some consumers don’t trust providers. Trust […]

Technology must ease broker buy-to-let burden: Bob Hunt

Standardisation within the lender market has always been something of a tricky ask, certainly when it comes to the introduction of new regulatory rules. Over the years, lenders have often chosen to interpret new rules very differently – as is their right – however widely varying approaches does mean that advisers need to get to […]


Magellan hires Nigel Robbins as regional sales manager

Magellan Homeloans has appointed Nigel Robbins as regional sales manager with responsibility for the South West and West Midlands. Robbins’ last role in the specialist mortgage market was at Precise Mortgages, where he was national sales manager. He has also worked in business development roles with Kensington Mortgages and Mortgages PLC. Magellan Homeloans sales director […]

The curse of long-term cash

Trevor Greetham, Head of Multi Asset at Royal London Asset Management, reveals why clients should be seriously concerned when short-term holdings of cash turn into a long-term investment. There is nothing wrong with holding wealth in the form of cash on a short-term basis. For many people capital stability is important and access to ready cash […]


News and expert analysis straight to your inbox

Sign up

Why register with Mortgage Strategy?

Mortgage Strategy continues to be the market-leading B2B mortgage publication in the UK, and provides trusted, independent insight with the aim of helping, promoting and analysing the latest developments for mortgage professionals.

News & analysis delivered directly to your inbox
Register today to receive our range of news alerts including daily and weekly briefings

Mortgage Strategy Events
Be the first to hear about our industry leading conferences, awards, webinars and more.

Research and insight
Take part in and see the results of Mortgage Strategy's flagship investigations into industry trends.

Have your say
Only registered users can post comments. As the voice of the adviser community, our content generates robust debate. Sign up today and make your voice heard.

Register now