The defined benefit (DB) transfer market is expected to grow even more, since schemes will be obligated to communicate the benefits value to each of their members annually.
According to Sir Steve Webb, head of policy at Royal London, members will become more aware of the value of their savings, and could be enticed to move their money elsewhere.
He said: “Most people do not know how much their pensions are worth. If you suddenly receive a letter with a value, you might be inclined to take it.”
This new obligation is part of the revision of the European Union Institutions for Occupational Retirement Provision Directive (IORP II).
The new rules, which the UK market will have to transpose by 13 January 2019, just before Brexit, include the introduction of a standardised pension benefit statement.
This document will have to provide members with simple and clear information about their individual pension entitlements.
Kusal Ariyawansa, a chartered financial planner at Manchester-based Appleton Gerrard, agrees with Sir Steve’s view that these new European Union rules are likely to cause a further surge in the number of defined benefit pension transfers taking place.
He said: “We had a referral from a client that asked for a transfer value because one of his colleagues received a substantial amount from a transfer, and now they want to understand whether they can take the money out.
“If they were send this information [annual statement], there is no doubt that they would have done that straight away.”
The volume of DB pension transfers has been soaring, as savers seek to take advantage of sky-high transfer values and to move their nest eggs into defined contribution schemes in order to access them via the pension freedom rules.
According to data from Xafinity, these transfers surged by 166 per cent in the first three months of 2017, compared with the same period last year.
However Rachel Vahey, product technical manager at Nucleus, said this was “basically an untapped market”.
Ms Vahey gave an estimate that only around 1.6 per cent of DB deferred members transferred last year.
Ms Vahey calculations are based on a report from The Pensions Regulator (TPR), which stated that the number of transfers could be as high as 80,000 in 2016.
She then combined this value with the number of deferred members in the DB population during the year, which was 5.1m according to data from the Purple Book published by the Pension Protection Fund (PPF).
According to Sir Steve, pension schemes might even include transfer values in the annual statement, since one of their objectives is to derisk and lower liabilities.
Mr Ariyawansa agrees.
He said: “It is in the scheme interests to ensure that their liabilities are reduced by getting members to move away.”
Michael Owen, director of financial planning at Brooks Macdonald, said that if active or deferred members receive an annual statement showing a [cash equivalent transfer value] CETV it is highly likely to lead to an increase in enquiries to advisers.
However, he noted that if the CETV falls from one year to the next, which could quite easily happen when interest rates start to increase, “members may misunderstand and believe that their benefits are falling in value when this is not quite the case”.
maria.espadinha@ft.com
