Under-40s buck final salary trend

Under-40s buck final salary trend

Fewer people under the age of 40 are opting to transfer out of defined benefit pension schemes, bucking an overall trend that has seen a significant spike in DB transfers since pension freedoms were introduced in April 2015.

Research by DB transfer specialist Selectapension found that the number of under-40s cashing in their DB pension over the last year fell by 53 per cent on the previous year.

Selectapension read this as a sign that, with very few DB schemes still open, particularly for younger members, the under-40s were unwilling to "lose a rare asset".

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The number of over-60s reviewing the option of transferring out of DB schemes with a financial adviser, on the other hand, went up by 67 per cent over the year.

Selectapension, which provides an outsourcing DB transfer service to advisers who are not qualified to advise on DB transfers themselves, said the average transfer value was now £195,000.

Andy McCabe, managing director of Selectapension, said: “For younger employees, retirement is a long way off and their current pension pots may be small so demand for a review is not as pressing.

“However, we are still seeing increasing demand for those approaching retirement who have a much clearer picture of their individual needs for later life. Transferring is by no means the best option for all and so professional advice is vital to the process.

"As advisers face increasing demand from those reaching retirement, robust technology to support them is crucial.”

Gary McNeil, a pension transfer specialist with McNeil Financial Services, said DB transfers for people under 40 were "very, very rare", adding that only in "exceptional circumstances" did it make sense to transfer out of a scheme before age 55.

"If the transfer value was ridiculously high you could have a look at it to see if it's a no-brainer. It can make sense, but it's very rare," he said.

However, for clients over-55 he said he had seen an "emphatic increase" in interest since pension freedoms, although he stressed that inquiries didn't necessarily lead to transfers. He added that despite the "massive" increase in interest, DB transfers remained "niche". 

A recent report by SimplyBiz showed that three our of four advisers had seen a rise in DB transfer inquiries.