Defined Benefit  

Only 15% of schemes offer partial pension transfers

Only 15% of schemes offer partial pension transfers

Only 15 per cent of defined benefit (DB) schemes allow partial transfers, despite widespread calls for them to do so, according to research by workplace financial advice firm Wealth at Work. 

Director Jonathan Watts-Lay said if partial transfers - where members can transfer part of their benefits and leave the rest in the scheme - became more widespread there might be a better management of risk.

Mr Watts-Lay said a lot of individuals would probably transfer when they shouldn’t.

Article continues after advert

He said: "We’ve already seen the numbers from the Financial Conduct Authority in research they did quite recently where they were sampling cases.

"They suggested that roughly half of those perhaps were unsuitable for transfers. So that’s an alarm in itself."

The volume of DB transfers has been soaring, as savers seek to take advantage of sky-high transfer values and to move their nest eggs into defined contribution (DC) schemes in order to access their cash using pension freedoms.

According to data from the Office of National Statistics, funds transferred out of pension schemes almost tripled to a record £34.2bn in 2017.

In October, the FCA revealed that advice in more than half of the DB pension transfers where the recommendation was to move the retirement pot was unsuitable or unclear.

Mr Watts-Lay said: "I think there’s also the issue of individuals who even if maybe they’re advised that they shouldn’t transfer, that the individual says, ‘Well it’s my money, I want to transfer anyway.’ So the insistent client issue.

"Which I think then plays back to partial transfers, because actually maybe there’s some balancing of that risk if actually they would accept a partial transfer, if they were allowed to do it, of course, by the scheme."

Mr Watts-Lay also expressed concerned about what the individual did with the money once it was transferred.

He said: "One of the concerns that we have is that as people go into retirement, if they’re in drawdown for example, are they getting ongoing advice?

"What happens 10, 15, 20 years into retirement? Particularly we know cognitive ability reduces as people get older, so how is that being managed?"

Alistair Cunningham, financial planning director at Wingate Financial Planning, said partial transfers were an "excellent idea", and that there was already precedent for this in the form of pension sharing on divorce.

He said: "However schemes should not be responsible for the additional work involved which should be passed onto the members, at a fair rate."

maria.espadinha@ft.com