Priya: CETV of £520,000 and a plan to access tax-free cash at 58
Priya is 56 and works as a band 7 nurse in an NHS trust, earning £68,000 a year. She has 29 years' service in the NHS Pension Scheme, a defined benefit career average scheme, and has been quoted a cash equivalent transfer value (CETV) of £520,000. Normal pension age is 67, when she expects an index-linked pension of about £19,000 a year. She wants to retire at 58, take £130,000 tax-free cash to clear a £90,000 mortgage and put £40,000 into a holiday let, then draw £30,000 a year from the transferred fund until State Pension age. She has £25,000 in savings and no other pension. Her attitude to risk questionnaire scored 'adventurous'. The advising firm holds pension transfer permissions, but the adviser she is seeing is not a pension transfer specialist. Priya has already told the scheme she intends to transfer and says she will proceed 'whatever the advice'.
1. Set out the main suitability factors and explain why a transfer is unlikely to produce a good outcome for Priya.
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Objectives and needs. Priya needs £130,000 of capital at 58 plus £30,000 a year for nine years, roughly £400,000 of withdrawals from a £520,000 fund, before any growth or charges. That leaves little margin for poor returns, and the holiday let is an illiquid, undiversified, tax-exposed use of pension capital.
What is being given up. The scheme pension is index-linked, government-backed (the NHS scheme is unfunded but backed by the state), and normally includes ill-health and survivors' benefits. At 67 it is worth roughly £19,000 a year for life. A transfer replaces a guaranteed, inflation-proofed income with an investment fund exposed to sequence risk, longevity risk and charges.
Alternatives ignored. The scheme will normally allow early retirement from 58 with an actuarial reduction and commutation of part of the pension for a lump sum, which may meet the cash need without losing the whole defined benefit promise. That comparison, not just the CETV, is the starting point.
Capacity for loss. 'Adventurous' describes attitude, not capacity. She has modest savings, a mortgage, no investment experience and a plan that depends on returns above the scheme's basis and on her dying earlier than expected.
Costs and behaviour. Advice, platform, fund and drawdown charges will erode the fund. The intention to proceed 'whatever the advice' signals that the decision is already made, which makes the adviser's challenge harder, not easier.
2. What regulatory and process requirements must be met before any transfer can proceed, given that the adviser is not a pension transfer specialist?
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The benefits are safeguarded and the CETV exceeds £30,000, so the client must receive advice from a firm with the appropriate pension transfer permission before the scheme will transfer.
- Specialist input. Full transfer advice and the transfer value analysis/comparison must be prepared or checked by a pension transfer specialist (PTS) holding the required qualification. The non-specialist adviser can conduct fact-finding and, where the firm permits, triage or abridged advice, but cannot give full transfer advice alone.
- Evidence base. The file needs a clear comparison of the CETV with the value of the scheme benefits, including the early retirement quotation and commutation option, plus cash flow modelling, charges, risk warnings and the client's stated objectives.
- Suitability and Consumer Duty. The firm must show the recommendation is suitable and delivers good outcomes, with fair value and clear communication, not merely that the client wants cash.
- Insistent client process. If Priya proceeds against a 'do not transfer' recommendation, the firm needs a written instruction from her, a recorded warning, a documented insistent-client policy and senior sign-off. The firm can decline to act.
- Records and disclosure. Document the advice, charges, capacity and any vulnerability, and confirm the client understands she is giving up guaranteed benefits.
3. Identify three alternatives to a full transfer and explain how each could meet Priya's objectives.
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1. Retire from the scheme at 58 with an actuarial reduction and commute part of the pension. This can deliver a tax-free lump sum and a reduced but still index-linked pension. It keeps the guaranteed income and survivors' benefits, and the lump sum can clear the mortgage. The comparison with the CETV should be done before any transfer is considered.
2. Stay in the scheme to 60 or 67 and borrow or downsize instead. A smaller mortgage, a lifetime mortgage or planned downsizing at 65 can fund the mortgage repayment without touching pension capital. The holiday let is discretionary and should be treated as a separate, higher-risk project, not a reason to transfer.
3. Phased or partial retirement. Reducing hours from 58, or taking the pension later while using savings and earnings, spreads the funding gap and reduces the amount that must be withdrawn from any transferred fund.
4. A partial transfer, if the scheme allows it. Some schemes permit partial CETVs, which would let Priya access a lump sum while retaining part of the defined benefit promise. This is often the best fit when the need is for capital rather than lifetime income.
Each alternative should be modelled against the same cash flow assumptions and compared with the transfer on a like-for-like basis, including charges, inflation and longevity.