After your home, a pension pot can often be the largest asset that you own. So, it’s important to make sure that your pension is protected and that you make the right decisions with it.

In recognition of this in 2015, the Government brought in a number of measures to help safeguard your pension. One such measure is to ensure that your pension manager or trustee confirms that you have taken the right advice before you transfer your pension into a different scheme. This can be of particular importance when you transfer from a lucrative final salary (Defined Benefit) pension into a product that can be a bit riskier, such as a SIPP.

The Act

The Pension Schemes Act 2015 came into force on 6 April 2015. The Act requires the trustees of Direct Benefit pension schemes to obtain prior written confirmation that the member (you) have taken independent financial advice from an authorised person before allowing the transfer of a pension. For reference, the relevant section of the Act is below:

48 Independent advice in respect of conversions and transfers: Great Britain

1. Where a member of a pension scheme has subsisting rights in respect of any safeguarded benefits, or a survivor of a member has subsisting rights in respect of any safeguarded benefits, the trustees or managers must check that the member or survivor has received appropriate independent advice before—

a. converting any of the benefits into different benefits that are flexible benefits under the scheme;

b. making a transfer payment in respect of any of the benefits with a view to acquiring a right or entitlement to flexible benefits for the member or survivor under another pension scheme;

c. paying a lump sum that would be an uncrystallised funds pension lump sum in respect of any of the benefits.

(8) In this section—

“appropriate independent advice” means advice that—

a. is given by an authorised independent adviser, and

b. meets any other requirements specified in regulations made by the Secretary of State;

“authorised independent adviser” means a person who—

a. has permission under Part 4A of the Financial Services and Markets Act 2000, or resulting from any other provision of that Act, to carry on a regulated activity specified in regulations made by the Secretary of State, and

b. meets such other requirements as may be specified in regulations made by the Secretary of State for the purpose of ensuring that the person is independent;

“safeguarded benefits” means benefits other than—

(a) money purchase benefits, and

(b) cash balance benefits.

Taking Advice

Taking advise on your transfer is critical and is instrumental in making sure that you make the right decision. Pensions are highly technical financial products that require expert knowledge and understanding to ensure you are protecting your asset and doing the right thing. In many cases, people who receive independent advice in regards to transfers are often advised that transferring is not the best option for them, and if they do so, they may lose money.

With the need to take advice being so important, your pension trustee must ensure that you have taken appropriate independent advice from a qualified professional. If they have failed to carry out that check, you transfer the pension, and it goes wrong, then, they maybe liable for your losses as they failed in their statutory duty to safeguard you.