Defined Benefit  

Surge in DB pension transfers worth more than houses

Surge in DB pension transfers worth more than houses

The most common defined benefit transfer is worth more than the value of the average house, according to Royal London research.

The provider's survey of more than 800 financial advisers found a growth of more than 50 per cent in the volume of transfers out of final salary pensions taking place in the last year, with the most common transfer value lying in the £250,000 to £500,000 range.

This compares with an average house price in the UK of £216,000 as at March 2017. 

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The vast majority of clients transferring were in their 50s, and the typical cash sum offered is between 25 and 30 times the value of the annual pension given up.  

However, one in four advisers reported that most of the transfers that they deal with are worth 30 to 40 times the annual pension foregone.

When asked the main reasons why people who have received advice want to go ahead with the transfer,  the top five reasons given were: the ability to provide more flexible income in retirement (83 per cent); large current transfer values (78 per cent); inheritance considerations (69 per cent); access to greater tax-free cash (57 per cent) and to take benefits earlier than in the defined benefit scheme (44 per cent).

Advisers also reported on the main reasons which they give for recommending against a transfer.  

The principal concerns were: fears about losing the certain income from the defined benefit scheme (81 per cent); investment risk associated with the transfer not appropriate to client (65 per cent) and that the  transfer value represented ‘poor value’ (59 per cent). 

Chartered financial planner, Scott Gallacher, of Leicester-based IFA Rowley Turton, said with eye watering amounts on offer to transfer it is not surprising people are transferring but they need reminding that they are giving up a valuable guaranteed pension and it could end badly.

Advisers also expressed frustration with the length of time it can take to obtain information from schemes in order to provide proper advice on transfers. 

Around 500 of the 800 advisers who responded said they ‘sometimes or often’ had to get a new transfer value quote because the three-month window of validity had lapsed before the advice process could be properly completed.

Seven out of eight said that they ‘strongly supported’ an initiative by Royal London to press for standardised information to be supplied by schemes alongside transfer value quotes.

Steve Webb, Royal London director of policy, said: "There is no doubt that the ability to transfer a defined benefit pension into a more flexible format is very attractive, provided that the decision to transfer is based on good quality independent advice.

"But sometimes the process takes far too long, through no fault of the adviser. We need a system where pension schemes provide on day one all of the information needed to decide if a transfer is a good idea or not. This would make life a lot easier for schemes, advisers and, most importantly of all, consumers."