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We Have Listened To You! Cash Flow Modelling Report Changes

Cash Flow Modelling

The O&M Pension Transfer Analysis Report covers a series of Cash Flow Models illustrating the potential outcomes on transfer to a Personal Pension,  assuming either Uncrystallised Funds Pension Lump Sum or Pension Drawdown is used to access benefits equivalent to those available in the Existing Scheme.

CUSTOMER SURVEY

We recently sent a survey to a sample of our customers to gauge their opinions on these pages of our report as well as several other topics relating to the ever-changing DB Transfer market.  As a result we decided to act upon some of the feedback we received to enhance our Pension Transfer Analysis Report.

SURVEY RESPONSES

The survey provided us with some important responses relating to the cash flow modelling pages of the Pension Transfer Analysis Report.

A large percentage of responders wanted a change in the drawdown model used within the report. This change would be for the Full Drawdown scenario being replaced by a Flexi-Access Drawdown (FAD) scenario and utilising the tax-free cash more efficiently in a Phased Drawdown model.

Regarding UFPLS, the survey responders were evenly split between 

    (a) those who wanted the Uncrystallised Funds Pension Lump Sum (UFPLS) modelling to be removed as it it is not something covered with their clients and

    (b) those who still wanted the option within the report, so that it can be covered with the clients.

Therefore, we have decided to keep this within the main body of the Pension Transfer Analysis Report and we will be considering introducing an option to exclude UFPLS in the coming months for those that do not require this element within the report.

WHAT'S CHANGING & WHY

  • Change from Full Drawdown to Flexi-Access Drawdown (FAD)
  • FAD and UFPLS cash flow modelling are now on separate pages

We have decided to make some report format changes to the cash flow modelling pages. We will be replacing the current 2-page format covering both Full Drawdown and UFPLS on each cash flow page to a new page solely covering the FAD option.  There will also be a new additional page dedicated to UFPLS. This means that our customers can use each page independently without the need to explain both scenarios if this was not required.

The previous Full Drawdown scenarios assumed the following:

  • no growth on the ‘cash in the bank’ that was funding the early years
  • no spending any of the ‘cash in the bank’ (which could be likely)

This means that the report assumes that the maximum tax-free cash lump sum would initially be taken and left in a nil interest rate environment to cover any scheme cash and scheme pension until it ran out. Then the remaining invested fund would be utilised.

We feel that the change from Full Drawdown to Flexi-Access Drawdown will provide a more realistic view on the application of drawdown, with tax-free cash being used more efficiently, which in turn will afford a better analysis of this option on transfer.  We also feel that having individual pages dedicated to the FAD and UFPLS options would provide a clearer picture of each scenario, helping advisers to explain these options to their clients.

O&M Pension Solutions