Standard Life today (30 July) has added it voice to that of other insurers who have called for the partial transfer option to be made a mandatory requirement in the Financial Conduct Authority's upcoming defined benefit (DB) regulations.
Alastair Black, head of financial planning propositions at Standard Life, said: “The DB to DC conversation isn’t going away.
"So far it has been very black and white, but it doesn’t have to be ‘all or nothing’.
"For many the flexibility of freeing up their pot of DB money is very attractive, but the challenge is giving up the guarantees offered by a DB pension.
"However, with a partial DB to DC transfer they could have a mixture of both, retaining some guaranteed income with the scheme, while taking some risk to provide the greater flexibility they are looking for. This could be a really good solution for many retirees."
He said the FCA needs to use the opportunity of its review of the pension transfer market to embed the value of partial transfers in the regulations, "so that a partial transfer must always be considered as an option for consumers during the advice process".
“We recognise that some schemes offer this and others don’t and that’s down to the decision of scheme trustees. Embedding the requirement in the DB regulations on advice for it always to be considered as an option, will ensure it is used appropriately where available.
“If partial DB to DC is more embedded in the advice process, we would expect to see more people deciding to opt for a mix of guaranteed and flexible income at retirement, rather than facing an all or nothing stalemate."
Royal London has also been making the case for partial transfers for some time.
Steve Webb, director of policy at Royal London, said for people with long service in a single DB scheme, the ability to transfer part of their pension rights while leaving the rest to generate a regular income could be the best option.
"But most DB schemes do not offer this flexibility.
"Partial transfers would help to de-risk this whole process both for investors and for advisers who would be able to recommend a ‘middle way’ where clients could secure a decent income in retirement as well as benefiting from some added flexibility.
"The sooner this becomes a legal right for scheme members, the better."
However partial transfers are not always popular or even practical for many defined benefit schemes.
Malcolm Reynolds, managing director of JLT Employee Benefits, which administers a large number of DB schemes and processes £750,000 of transfer payments each working hour, paying out £100m of transfers each month, said: "Ninety nine per cent of our clients don't offer this facility as there is no regulatory requirement to do so."
" It is too complex and not worth the extra administrative cost for them.
"Which part of the pension would you transfer: the service period, the guaranteed minimum pension element or the non-GMP element?"
Lesley Williams, group pension director at Whitbread Group plc and chair of the Pensions and Lifetime Savings Association, echoed that partial transfers can be difficult for schemes to offer.
A spokesperson for the FCA said: "We have a consultation paper out at the moment on new rules and guidance about advising on pension transfers which providers are encouraged to feed back on."
The FCA does not have specific rules on advice regarding partial transfers.
Where an adviser is giving advice on a transfer out of a defined benefit pension scheme they must ensure this advice is suitable for their client and comply with the additional rules that apply for advising on this type of transaction, for example the advice must be given or checked by a pension transfer specialist and a transfer value analysis must be undertaken.
If a partial transfer is an option all this would need to be taken into account.
In June, the FCA outlined plans to shake-up the rules for pension transfer advice in a 65-page consultation paper.
Included in this is a proposal to remove the existing guidance that an adviser should start from the assumption that a transfer will be unsuitable.
This will be replaced with a statement in the FCA Handbook that, for most people, retaining safeguarded benefits will likely be in their best interests and there will be guidance that advisers should have regard to this.
This will not require an assumption to be made by an adviser, according to the watchdog.
The regulator stated an assessment of suitability should focus on whether a transaction is right for the individual and should be assessed on a case by case basis from a neutral starting position.
According to the FCA the adviser needs to demonstrate that the transfer is in the best interests of the client.
The FCA is currently carrying out a desk-based study into advice firms doing a “significant” amount of defined benefit transfer business.
Among the concerns the regulator is believed to have is the conflicts of interest involved in the process.
The work is understood to not be a formal review or study but is a piece of supervisory work in which the FCA is looking at advice firms which have increased the number of DB transfers they have been doing.
