DB scheme opt-out advice
I'm looking for some help please. Adviser is, rightly in my opinion, recommending a client opts out from active service within a DB scheme. This client cannot achieve his objectives unless he transfers these benefits and draws on them early, which can only happen if he opts out first. Other salient points:
- He intends to remain in employment with the sponsoring employer and has been told he would be eligible to join the DC scheme with a nice employer contribution of 12% if he opts out of the DB scheme and would be able to transfer his DB benefits as soon as he becomes a deferred member.
- He's got 3 years to go until the DB scheme NRD.
- He'd not lose death in service benefits by opting out
- The scheme have only given an indicative CETV - they'll only give a guaranteed one when he's finished service in the DB scheme.
The issue isn't with the advice (the cash flows are compelling). The issue is the adviser's compliance department will not give any judgement on whether the opt out recommendation is suitable unless they can see an actuarial report that quantifies the value of benefits given up, although they have not indicated specifically what that means. The compliance department acknowledges that if the client was a deferred member, the advice to transfer would be solid and they agree that the cash flow analysis the adviser has done 'stacks up'. But as he's an active member they have their red flags out all over the place.
The adviser has attempted to quantify this himself by running a TVC assuming that pension at dol (now) is augmented by the estimated future accrual he'd be giving up by opting out. It's a bit of a fudge, but it does go some way to trying to illustrate the value of the benefits given up and the additional work that the current estimated CETV would need to do to give him equivalent benefits. Compliance department didn't like that one bit, however.
The adviser has approached an actuary who has worked on things like this in the past, only to be told he wouldn't be willing to put his name to it given the risks involved.
So, we're a bit stuck. We could estimate, based on some assumptions, what pension he'd lose. We could also estimate what pension could be secured from DC scheme. Those parts are easy. It's the quantifying the value that the lost DB accrual would represent that's the issue here. The only way that I can think of doing it is using a TVC annuity rate, work out what fund is required at NRA to secure the 'lost' pension (allowing for the pension that could be secured from the DC membership) and discounting back. Does that sound reasonable?
Has anyone got experience of similar?