Around a third of those who have a defined benefit pension and are retiring this year could seek to transfer their pension under new pension freedoms coming in from April, highlighting concerns expressed by advisers and others over the likely demand for flexibility.
Research conducted by Research Plus on behalf of Pru among 7,687 UK non-retired adults aged over 45, including 1,012 intending to retire this year, found that around two-thirds of those with final salary schemes retiring this year intend to take their benefits as planned.
Of those who are planning to retire this year, 813 have pension savings and of this figure 452 have final salary schemes.
While this means up to a third could seek to transfer away from their guaranteed benefit, some 13 per cent are either undecided or are waiting to take professional advice before making a decision.
From 6 April, it will be mandatory for anyone with a defined benefit pension to take regulated financial advice, except where total savings are less than £30,000.
The research also showed 10 per cent who are retiring this year overall intend to seek advice before making a decision. This rises to 32 per cent when including those who do not plan to retire this year, indicating a strong pipeline of future advice business arising out of the reforms.
Advisers have frequently pointed to a growth in demand ahead of the new reforms but many have expressed concern over the likely spate of DB transfers, advice for which needs to be overseen by a pension transfer specialist with an AF3 qualification or equivalent.
A number of advisers have indicated they may choose to turn away or refer clients seeking to transfer their final salary scheme to a defined contribution alternative to access new pension freedoms from April, pointing to potential future claims.
Of those who plan to retire this year:
• 8 per cent will take the tax-free cash and invest the remainder in drawdown;
• 7 per cent will take the tax-free cash and buy a lifetime annuity with the rest;
• 6 per cent will take the tax-free cash and invest the rest in a blended solution;
• 6 per cent will withdraw as much as possible without having to pay higher rate tax and leave the rest in the fund;
• 5 per cent will take all the pension in one go and invest it in savings accounts or investment funds;
• 3 per cent will take pension savings as lump sums over two to three years;
• 2 per cent will take all savings in one lump sum and spend it;
• 1 per cent will take it all and invest in property; and
• 12 per cent do not know what they will do, with a further 4 per cent stating ‘none of the above’.
Pru also found a third of those with pension schemes who are aware of the new pension freedoms have already changed or will change their plans for taking retirement income.
Vince Smith-Hughes, retirement expert at Prudential, said: “The financial decisions made at retirement can be some of the biggest decisions that people make in their whole lives.
“With this in mind it’s welcoming that the members of the ‘Class of 2015’ are not planning to blow their entire pension savings en masse. The upcoming freedoms mark the start of a process not its end and we’d encourage everyone approaching retirement to take the time to get all the help they need rather than rush headlong into immediately cashing in their fund.
“While all retirees should make the most of the free guidance available from the government’s Pension Wise scheme, a consultation with a professional financial adviser or retirement specialist will also help many people to make the most of the new choices.”
donia.o’loughlin@ft.com
