Transfer values of UK defined benefit schemes can reach as high as 54 times that of an individual’s annual pension or as low as 11 times an annual pension, according to Drewberry Wealth.
The firm reports thousands of people have used its online final salary pension transfer calculator launched in April 2017 to see whether a potential transfer might be worth considering and it is from this that it estimates the value of transfers.
“Although there are certainly some extremes out there, because these numbers come from deferred final salary pension scheme members from across the UK, they give a good indication of the current state of the transfer market,” says Neil Adams, head of pension planning at Drewberry Wealth.
“The highest multiple so far calculated by our online tool is 54 while the lowest is a measly 11. This means that while some scheme members with a £10,000 a year pension are being presented with transfer values of around £540,000, at the other end of the spectrum, members of less generous schemes are being offered just £110,000 in exchange for the same level of future income.
“Interestingly, the median multiple recorded for someone retiring at age 60 is 30 although this falls to 24 for those aiming to retire at age 65.
“Even so,” says Mr Adams, “with a median transfer value of just over £450,000, it is easy to see how some £50bn has already been transferred from final salary schemes since the onset of the pension freedoms.”
Commenting on Drewberry Wealth’s approach to the recent boom in transfer enquiries, Mr Adams said: “One theme that is coming through is the number of smaller potential transfer cases that we still find ourselves recommending against.
"There are sound reasons for this as the balance of risk tends to be in favour of those with larger pots and other potential sources of retirement income, and against those with smaller pension pots or few other retirement assets.
“It is also clear that the relative size of the transfer values being offered depends on the individual schemes involved, not their industry sector. For example, we've seen transfer values ranging from 15 to 50 and beyond in the telecom sector alone.”
“We’ve also noticed a distinct career bias among the transfer clients that we’ve been seeing over the last couple of years. So far, we’ve dealt with a great number of financial services professionals such as such as asset managers, bankers, actuaries and financial directors as they tend to have the best grip on what’s involved.
“Our experience here supports the latest findings on transfer activity reported by the Prudential. Among other things, these suggest that over 80 per cent of final salary scheme members have yet to consider a potential transfer and that, in total, only around 3 per cent have actually completed a transfer.
“Despite the deluge of transfer business that the advice sector is seeing our impression is that currently we’re only really dealing with the most financially literate Britons. This suggests that the current boom in transfer business still has some way to go.”
Glasgow-based IFA Allan Maxwell of Corporate Benefits, takes issue with Mr Adams comments.
Mr Maxwell said: "One of the key determinants of the transfer value is the age of the client. The younger the client, the longer the discount period and the lower the multiplier.
"While a multiplier of 11 is low it does not necessarily mean that the transfer value is measly. It is more likely to reflect a poorly funded scheme and an employer with a weak covenant and is potentially a scheme destined for the Pension Protection Fund.
"I would also say that we have not seen a bias towards financial services clients. Our experience is more along traditional lines where a client refers a friend, relative or colleague."
The Financial Conduct Authority outlined plans to shake-up the rules for pension transfer advice in a 65-page consultation paper published last week.
The FCA intends to add a requirement that advice on conversion or transfer of safeguarded pension benefits must now include “a personal recommendation”.
The regulator stated if advice does not include a personal recommendation “it won’t provide appropriate protection for consumers.”
The watchdog stated: “In view of the complexities when considering a conversion or transfer of safeguarded benefits we think that, for advice to be meaningful, it is important it looks at the consumer’s individual circumstances and provides a specific recommendation.
“The merits of transferring or converting safeguarded benefits are highly dependent on an individual’s personal circumstances.
“To make informed decisions, consumers need to understand the specific details of their safeguarded benefits, make an assessment of the value of this benefit for their specific circumstances and compare this to the value of alternative options.”
Figures from The Pensions Regulator found that up to 80,000 defined-benefit pension transfers were made in the year ending 31 March.
stephanie.hawthorne@ft.com
