The Pension Transfer That Looks Too Good
Priya, 54, earns £62,000 as a senior NHS administrator and is a member of the NHS Pension Scheme (1995/2015 sections). A self-employed adviser she met at a networking event has produced a 'free' transfer value analysis showing a CETV of £410,000 and projects that, invested at 6% a year, this could fund an income of £32,000 from age 57. Priya has £18,000 in credit card debt at 22% APR, no other savings, and hopes to retire at 58. The adviser is not FCA-authorised and has asked her to sign an 'execution-only' transfer form within 14 days, saying the NHS scheme is 'a dinosaur'. Priya's scheme statement shows a normal pension age of 67 for her 2015 section benefits.
1. Identify the regulatory and suitability problems with the proposed transfer and explain what Priya should do before making any decision.
Read the worked answer
Regulatory issues
- Transfers from a defined benefit (DB) scheme with a CETV above £30,000 require the member to take regulated advice from an FCA-authorised adviser who holds the pension transfer specialist qualification. An unregulated adviser cannot lawfully sign off the transfer, and an 'execution-only' transfer of safeguarded DB benefits is not permitted.
- The 14-day pressure and 'free' analysis are classic red flags; the advice must be documented in a transfer value analysis / appropriate pension transfer analysis (APTA) comparing the critical yield.
Suitability issues
- Priya's normal pension age is 67 for the 2015 section, so her 'retire at 58' plan is inconsistent with the scheme's actual benefit age; the adviser's projection ignores early-retirement reductions.
- The 6% projection is not guaranteed and ignores sequence-of-returns risk, charges and the loss of index-linking and survivor benefits in the NHS scheme.
- She has £18,000 of 22% APR debt - clearing this is a guaranteed 22% return and should take priority over any investment.
What she should do
- Do not sign anything.
- Check the adviser on the FCA Register; report the approach if unregulated.
- Obtain a CETV and scheme statement, then seek independent, FCA-authorised DB transfer advice.
- Compare the critical yield against a realistic net return after charges.
- Use free guidance (MoneyHelper/Pension Wise for over-50s) before committing.
2. Assuming the transfer were permitted, outline the main factors a competent adviser would weigh in deciding whether transferring is in Priya's interest.
Read the worked answer
A competent adviser would build a balanced comparison:
Reasons to stay
- Guaranteed, index-linked income for life; no investment or longevity risk borne by Priya.
- Survivor and ill-health benefits; the scheme is backed by the government.
- Her stated retirement age of 58 conflicts with a scheme NPA of 67, so early retirement would be reduced - but a transfer would need to fund 9+ years of income from a finite pot.
- She has no other savings and significant debt, so she has little capacity to absorb investment losses.
Reasons a transfer might be considered
- Flexibility over access and death benefits (e.g. passing a pot to beneficiaries).
- A very high CETV relative to the income it would buy (critical yield test).
- Ill health allowing enhanced annuities.
Decision framework
- Calculate the critical yield: the investment return needed to replicate the scheme income after charges. If it exceeds a realistic net return, staying is indicated.
- Stress-test against poor early returns, longevity to 95+, and inflation.
- Consider a partial approach only if the scheme allows it.
Given her debt, lack of savings and desire for certainty, the weight of evidence points to staying in the scheme unless the critical yield is unusually favourable and she accepts the risk.