Defined benefit (DB) trustees should make partial transfers a standard option for their members due to the mix of income security and flexibility this can offer, according to a report from LV.
The report, titled 'Why partial transfers should be a standard option', stressed the need for greater understanding of partial transfers among trustees, schemes and members.
Since the 2015 pension reforms were introduced, there has been a marked increase in defined benefit members requesting a transfer.
However, most schemes only offer single transaction transfers which are often not suitable for the majority of members.
Partial transfers can offer a less risky solution as they provide a mix of flexibility and guaranteed income, yet few schemes currently offer partial transfers to their members.
Back in April the Financial Conduct Authority and the Financial Ombudsman Service told FTAdviser that advisers must find out whether pension schemes offer partial transfers when advising on defined benefit transfers.
Failing to do so could give the client grounds for a successful complaint, the ombudsman stated.
Partial transfers allow members to retain a portion of their guaranteed income in retirement, and cash in the rest.
Capita Employee Benefits, Hymans Robertson and JLT Group report that less than 10 per cent of clients currently allow partial transfers while LCP stated in the first quarter of 2016 that 15 per cent of the schemes they administer have decided to offer partial transfers.
To ensure improved visibility and availability of partial transfers so DB members are able to make the best retirement decision for them, LV recommends that the government and industry do more to improve member, trustee and scheme understanding of partial transfers.
LV urged the the risks and benefits of partial transfers be better explained.
Trustees should also work with financial advisers to explore practical solutions for members and make partial transfers a standard option, the provider added.
Mary Stewart, head of corporate solutions at LV, said: “The freedom and choice reforms have radically changed the pensions market and the way in which consumers can access their pension pots.
"Great opportunities are now available for retirees but the freedoms have also increased the risk of someone running out of money, particularly for DB members who want to transfer out of their scheme.
“We strongly believe there is a role for partial transfers to allow DB scheme members flexibility over their retirement options, while maintaining the certainty and security of a regular income.
"We know many trustees may be wary of partial transfers, partly because of the complexity of the administration involved, however they can help reduce the risk for both member and trustee.
"We want the government and regulator to support the take-up of partial transfers among schemes and help deliver better outcomes for consumers in retirement.”
Steve Webb, director of policy at Royal London, said: "We welcome the growing recognition that a partial DB transfer might be the right answer for many people.
"Particularly for those who have long service in a single scheme, an all-or-nothing choice increases the risk for client and adviser alike.
"The spirit of the 'freedom and choice' reforms was about enabling people to tailor their finances in retirement to fit their personal circumstances and the option of a partial DB transfer could be a very valuable additional choice."
But IFA Kim Barrett of Barretts Financial Solutions in Bishop's Stortford thinks the idea is totally impractical and wrong headed.
Mr Barrett said: "Nearly every single defined benefit scheme rules would have to be rewritten. It would cost a lot of time, management effort and money."
stephanie.hawthorne@ft.com
