Personal Pension  

Standard Life downplays DB to DC transfer impact

Allowing people who are approaching retirement to take advice to transfer from funded private sector defined benefit to defined contribution pension schemes will not cause “adverse economic ramifications”, Standard Life said.

The government proposed a blanket ban on any transfers from DB to DC schemes due to concerns about the market impact it would have.

The concern is a significant increase in volumes of transfers could adversely affect financial markets by reducing demand for government bonds or corporate debt.

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According to Standard Life’s analysis, less than 0.2 per cent of pension assets are likely to be impacted, while the majority of transferring members will likely require low volatility, risk-based investment in assets such as gilts or corporate debt in order to ensure a sustainable retirement income.

The nature of the demand may shift to shorter-dated instruments, but the scale of demand is unlikely to change significantly, the provider said.

Alastair Black, head of customer income solutions at Standard Life, said: “We do not anticipate a wholesale demand swing away from bonds as a result of continuing to allow advised DB to DC transfers in later life.

“In some cases, given DC pensions could provide a better outcome for some savers, introducing a blanket ban on transfers would seem to be at odds with the ethos of freedom and choice at the heart of the government’s package of reforms.”

Earlier this month Standard Life called on the government not to ban all transfers, warning it would “unduly constrain” options for employers.

In May Andrew Vaughan, the Department for Work & Pensions’ working group chairman and outgoing chairman of the Association of Consulting Actuaries, also said transfers for those yet to retire should be permitted as part of the Budget shake-up of pensions rules.

Standard Life conceded for the vast majority of pension savers, a transfer is not appropriate but it is likely that many DB pensions will not offer savers the greater flexibility in taking retirement income introduced in the Budget reforms.

DC pensions allowing more choice may be attractive for some people from age 55 when the reforms kick in.

Any risks associated with transfer would be mitigated if the Financial Conduct Authority were to mandate that all savers receive professional advice on any proposed move from DB to DC at age 55 or over.