Six months after the pension freedoms were introduced, data from Selectapension suggests younger people are considering switching from defined benefit to defined contribution schemes to take advantage of the new flexibilities.
Since Selectapension launched its financial advice service in April, 13 per cent of cases analysed have been from clients aged 40 to 49, while a further 60 per cent of cases have been from those between the ages of 50 and 59.
The firm’s managing director Andy McCabe commented consumers are engaging with their retirement plans well ahead of the state pension age.
“Nothing is sacred in the new pensions world, so even DB schemes are not necessarily seen as the gold plated pension they once were. But with this disruption, comes real opportunity for advisers - provided they are prepared to take it.”
In September, Selectapension revealed that twice as many people sought DB to DC transfers in the first three months since the reforms; a 106 per cent increase compared with the same period last year.
Graeme Mitchell, managing director at Lowland Financial, told FTAdviser that in the last six months he has seen the amount of enquiries increase across the board.
“You have to look at each case on its own merits, but generally as long as clients are aware of the guarantees they are giving up, then many have been choosing the increased flexibility and ease of access they get from transferring out of DB.
“If it’s all you’ve got, then probably best to stick with it, but lots of people will have other potential income streams and are rather disenchanted with DB.”
However, Dalbeath Financial Planning owner and IFA Matthew Harris, called this a hugely risky trend.
Mr Harris said: “We are regularly asked by clients whether they shouldn’t transfer out of their DB scheme into a DC scheme instead. They are attracted by the apparently generous cash transfer values (which aren’t really generous at all) and the increased ability to pass assets to their heirs.
“It can seem like a very tempting offer, but it is a dreadful decision for most people and the next big mis-selling scandal is going to be people transferring out of DB into DC who then see their pension assets squashed by a stock market fall.”
Kevin Croker, financial planner at Crokers Financial Planning, explained that he has had a few clients in DB schemes that are maintaining them based on the information he has given to them on the benefits and employer contributions.
“They are now also investing into their own Sipps to build up a fund that they can use to obtain early retirement before the scheme benefits are paid and certainly before state pension, which for them will be a minimum of 68, and probably will be 70 in the next 10 years.”
peter.walker@ft.com
