PensionsAug 29 2017

Pension schemes failing retirees on transfers and guidance

Search sponsored by
Pension schemes failing retirees on transfers and guidance
ByMaria Espadinha

Only around one in six defined benefit (DB) schemes offers the choice of a partial transfer to members, despite widespread support from advisers for the option, research from LCP and Royal London has shown.

More than half of the advisers surveyed said that they ‘strongly supported’ giving savers the option of transferring some of their pension rights whilst leaving some within the scheme.

The majority of DB schemes insist individuals wishing to transfer take all of their benefits - such as a guaranteed income - out of the scheme, with very few allowing individuals to transfer a percentage of their benefits, despite regulations permitting this.

Worryingly this latest research, which is based on two surveys - LCP surveyed over 100 DB schemes and Royal London surveyed over 800 financial advisers – also showed most of the five million people who have rights in a salary-related pension from a former employer are not receiving timely information and advice.

The majority of advisers (94 per cent) surveyed reported a large increase in the numbers wanting to transfer their DB pension rights into a defined contribution (DC) arrangement.

Typical transfer values lie in the range £250,000 to £500,000, and this number is typically a multiple of 25 to 30 times the size of the annual pension, according to the paper.

The research found the three biggest attractions to make a transfer are the greater flexibility available in a DC arrangement; the historically large transfer values currently on offer; and the potential to pass on a lump sum balance on death to heirs.

Among those advised not to transfer, the main reasons are: the loss of a guaranteed income; the ability of the client to handle risk; where the DB pension is the only or main income available.

Sir Steve Webb, director of policy at Royal London, said that millions of workers “may not be aware that they also have rights which could also be moulded to better fit their individual needs”.

Sir Steve said: “For those considering transferring out of a salary-related scheme, the option of a partial transfer would offer a welcome new flexibility and is strongly supported by advisers.”

The research also showed that schemes need to provide comprehensive, standardised information about scheme rights when providing a transfer value quotation.

A majority of advisers said that they ‘often’ or ‘sometimes’ had cases where a lack of information from the scheme meant it was impossible to process transfer advice within three months, meaning that a fresh transfer quote had to be obtained.

Kusal Ariyawansa, a chartered financial planner at Manchester-based Appleton Gerrard, fully empathises with the adviser survey.