Defined benefit pensions haemorrhage up to £50bn

Defined benefit pensions haemorrhage up to £50bn

As much as £50bn has been pulled from final salary pension schemes in the last two years, according to the latest calculations, as the tide of people cashing in their retirement pots continues unabated.

Figures from Mercer suggest pension scheme members cashing in have reduced public scheme liabilities by £50 billion, with 210,000 people leaving the schemes.

Transferring from these schemes into defined contribution pensions has become popular due to record low gilt yields, which have made pension transfer values extremely high, and the introduction of pension freedoms in April 2015, which are  only accessible to those with defined contribution schemes.

“We are doing quite a few of these,” said financial adviser Dhawal Chandan from Just Financial in Glasgow.

“We have a lot of clients, particularly those with health problems or who want to pass pensions on to non-lineal descendants who see this as an attractive option.”

Mercer worked out the figures by looking at the transfer value payments made on behalf of its clients, since April 2015 and up to the end of May. Mercer provides administration services to around seven per cent of the pension market.

Figures from the Financial Conduct Authority suggest 80,000 defined benefit pension transfers took place in the year to the end of March alone.

On 21 June the FCA proposed stricter rules on pension transfers in a consultation with the financial services industry, including a an obligation to provide pension transfer customers with a personal recommendation that takes into account their own circumstances and position before deciding on whether the transfer is in the client’s interests.