Defined Benefit  

Pension transfers hit record £25bn

Pension transfers hit record £25bn

More than £25bn was transferred out of pension schemes in 2016, the largest volume in a single year since Origo's Options Transfers service was launched in 2008.

Origo's Options Transfer service is used by 90 firms, including the major pension consultancies, life companies (which collectively own Origo), platforms and Sipp providers. 

Origo estimates the vast majority - around 90 per cent - of pension transfers in the contract market go through its service.

In total, Origo revealed it has facilitated the transfer of £100bn worth of pension transfers since 2008, 63 per cent of which was transferred in the last three years.

Origo's managing director Paul Pettit said the upward trend, which he put largely down to the introduction of pension freedoms in April 2015, was likely to continue.

Mr Pettit predicted three factors would push the volume of transfers up over the coming year.

The first was new rules forcing annuity providers to offer annuity rates reserved for existing pension customers on the open market.

That, he said, would increase the incentive to shop around.

The second was the maturing auto-enrolment system.

Mr Pettit predicted that employers were likely to start looking around to see if they could better deals with different auto-enrolment providers.

And finally, he said the increase in partial defined benefit transfers - a trend which has seen some defined benefit schemes offer their members to take a part of their pension as a lump sum - would increase the volume of final salary scheme transfers.

Mr Pettit said defined benefit to defined contribution transfers could give pension holders "the best of both worlds".

"If a pension holder transfers the whole of their defined benefit pension into a defined contribution product, then they have the issue of how to generate an income for life – buy an annuity, drawdown, or hybrid product?" he said. 

"With a partial transfer, sufficient entitlement could be retained in the scheme pension to provide a suitable income for life, while the rest of the pension could be moved to DC arrangement, to take advantage of more flexible products and other benefits of the pensions freedoms, such as the new death benefits allowing pensions money to be passed down the generations."

Currently only a few DB schemes offer partial transfers - approximately 10 per cent according to Paul Darlow of pensions consultancy Xafinity.

Mr Darlow recently told FTAdviser schemes offering a partal transfer service tended to be the bigger, more customer-service oriented schemes.

But Mr Pettit said if more schemes sanctioned partial transfers "it would provide the scope for considerably more transfers to take place".

Financial advisers have overwhelmingly welcomed the prospect of more partial transfers. 

Phil Stevenson, a chartered financial planner at Ark Financial Planning, said he had not seen partial transfers offered, but added "it has surely got to be a good thing, greater choice leads to better outcomes".