Pension transfers and switches Paul Taylor ACII FPFS This presentation is directed at professional financial advisers. It should not be distributed to, or relied upon, by private customers Qualified Income

2 Today Why enter the transfer market The transfer drivers Opportunities Pension Switching How AEGON can help

What makes up the transfer market?  Occupational transfers  Defined benefit  Money purchase  Personal pension switches  Premium redirection  Benefit Crystallisation

4 Pension transfer market  £1.3 trillion in occupational schemes*  £130 billion contract DC*  £130 Billion contract – unbundled*  50% in payment**  41% deferred** *UBS 2008 **The Pensions regulators purple book 2009

5 Pension transfers - The objections  There’s a recession, a credit crunch.  I’m going to defer any action until things are clearer  The FSA & Compliance issues  I don’t do pensions transfers – they’re so complicated

6 Transfers pre - 6/4/2006  Controlling Directors  High Earners >45  Appendix XI tests  TFC certificates  Early vesting certificates  PN10.34  Lump sum death restrictions

7 Transfers post - 5/4/2006  Controlling Directors  High Earners >45  Appendix XI tests  TFC certificates  Early vesting certificates  PN10.34  Lump sum death restrictions

8 Transfer freedom  No restrictions, tests or TFC certificates  But must be a ‘recognised transfer’  Partial and/or Split transfers possible  Beware - Partial transfer if TFC>25%  Not treated as contribution - no impact on annual allowance  Not crystallisation event unless to overseas

9 Pension transfer market You have to be authorised to do Occupational pension transfers. So….. Are you authorised?

10 Pension transfer market Key pad question… Are you authorised to do Occupational pension transfers? Yes. Press 1 No. Press 2

11 Pension transfer market Key pad question… Do you want help to become authorised to do Occupational transfers? Yes. Press 1 No. Press 2

12 Pension transfer market  Refer to authorised IFA  Use a Pension transfer Bureau / Service  Engage service of / register 3 rd Party as a transfer specialist  Ultimately…… Get qualified & authorised

13 The transfer market drivers  Early leavers  Members want more control & choice  Wider & more suitable benefit choice  Pension sharing orders  Overseas transfers  Scheme reconstructions

14 Leaver options Preserved pension Transfer Early retirement New employer's scheme PP/stakeholder s32 Refund of contributions Overseas?

15 Preserved pension  May be best option  Some considerations  Revaluation of Defined benefits  Scheme funding position  Benefits on offer & when payable?

16 DB transfers - TVAS Report details:  Investment return to match scheme benefits at retirement  Analysis of immediate & long term death benefits  Comparison of TFC  Takes charges into account  Based on various assumptions  Contrasts DB, s32 & PP

17 Wider benefit choice Income risk to client Investment control Drawdown Full income risk with policyholder. Potential for investment growth. Annuity No income risk with policyholder. No potential for investment growth. Income for Life Guaranteed income = less risk. Potential for investment growth. Risk

18 Transfer considerations  Benefits gained or lost  Impact of future annuity rates  New employer scheme  Transfer club  Charges  Investment choice

19 Transfer considerations  Transfer value offered  State of health  Term to retirement  TFC & death benefits  Attitude to risk and personal circumstances

20 Transfer reasons  Wider investment choice  Consolidation  Lower charges  New job  Poor administration  Benefits, shape and availability  Will the client likely be better off?

Reasons to transfer Better fund performance Consolidation Lower charges Flexibility Moved Job Other AEGON pension transfer survey July 2007

22 Transfer opportunities Pensions & divorce – sharing orders Court order specifies % of CETV to be deducted Private sector schemes must offer transfer Advice needed by both parties Opportunity to advise & build professional connections

23 Transfer opportunities Occupational scheme reconstructions Advice to employer How to secure benefits outside scheme How to protect members & avoid comeback Advice to member Members being forced out Accept trustees proposal or choose alternative? TFC protection minefield

24 Transfer banana skins  Insufficient to cover GMP  TFC protection  Early pension ages  USP transfer or OMO?  DB to DC if enhanced protected

FSA Switch Review December 2008

FSA switching review  30 Firms  25% had 33% + cases judged unsuitable  50% had up to 33% unsuitable  Only 25% had all cases judged as suitable

27 Why Unsuitable?  More expensive than the existing scheme or stakeholder  Asset allocation out of line with risk profile of client  Lack of investment reviews  Loss of benefits Source: FSA Switch Review December 2008

28 Flexible Pension Plan – Why Suitable Extra product costs without good reason - FPP vs Stakeholder /RU 64 /Sandler shape Funds unsuitable - FPP – fund choice/cost / IRP /automated rebalancing /asset allocated model portfolios. Ongoing Reviews - Portavista FPP - Online services Loss of benefits - FPP GAR – Income for life

29 In summary Buoyant transfer market Still complex subject We can help

Important information  This information is based on AEGON Scottish Equitable’s understanding of current legislation, taxation law and HM Revenue and Customs practice which may be subject to change.  This presentation is for professional financial advisers only. It isn’t for private customers and shouldn’t be given out to, or relied on by, them.  AEGON UK plc, Registered Office: 90 Long Acre, London WC2E 9TF.  Registered in England (No ). Member of the AEGON Group.