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Data reveal 200% jump in fund selection for DB transfers

Data reveal 200% jump in fund selection for DB transfers

The number of advisers selecting specific funds rather than using a default option when reviewing transfers from defined benefit pension schemes to defined contribution has increased by almost 200 per cent and even more in those choosing to use discretionary fund managers, new data reveal.

Selectapension's year-on-year figures show that while in 2013 there were 9,396 default selections, last year the number fell 36 per cent to 5,983.

Over the same period, those who actively selected funds or sectors rose 199 per cent from 374 to 1,121, while those choosing DFMs increased by 438 per cent from just 36 in 2013 to 194 in 2014.

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Transfers have been a key focus for regulators in recent years. Switching for reasons which are not fully documented or made clear, and which have generated generous commissions, have given rise to fines.

In terms of where the money went, Selectapension's data showed the ‘mixed investment 40-85 per cent’ shares asset class rose to 15.57 per cent in 2014 from 5.56 per cent in 2013, while ‘UK all companies’ plummeted to 5.39 per cent last year, from 36.16 per cent in 2013.

‘Targeted absolute return’ also soared in popularity, up from 19.19 per cent in 2013 to 28.78 per cent in 2014.

Taking this to individual fund level, 2014 was topped by the PruFund Growth, MPS Growth and Standard Life Investment’s Global Absolute Return Strategies.

Jupiter’s European fund slipped from top spot in 2013 to fourth most popular choice in 2014, while both years M&G funds rounded out the top five - ‘global dividend’ in 2013 and ‘optimal income’ last year.

Peter Bradshaw, national accounts director at Selectapension, told FTAdviser that companies offering enhanced transfer values to DB pension scheme members is “making the market lively”.

Mr Bradshaw also noted that this increased demand meat that many older advisers have turned to using paraplanners “for the heavy lifting” of writing reports and running IT systems, while they use “soft skills” to help clients with investment decisions.

As for the firm itself, it has developed Selectapension Bureau Services to prepare one-off or bulk-non advised reports, utilising either money purchase, income drawdown, defined benefit or qualifying recognised overseas pension schemes.

Mr Bradshaw stated that the pension changes due in April have brought membership of DB schemes into sharp focus.

“Because they can be complicated with different strata of benefits within schemes, many advisers find it helpful to have specialists undertake transfer analysis on their behalf.

“Selectapension Bureau Service is offered to those who may not be authorised to give advice on specific types of pensions or don’t have the time to manage bulk cases. The big danger for people is transferring from a DB scheme for the wrong reasons, especially into unsuitable investments which may not match their attitude to risk.”

He added that demand for mass market guidance drove the development of the service and a network agreement has recently been reached to subcontract the advice piece around DB pensions.