Research published by Aegon in January 2019 showed that for the second year in a row, advisers surveyed by the insurer view DB to DC transfers as the area of activity that offers them the greatest potential for growth.
In addition to the trends already noted, some individuals may want to consider a DB to DC transfer because they lack faith in the long-term prospects of the employer sponsoring their DB scheme.
There have been a number of high profile examples of companies putting DB pension entitlements at risk when the company found itself in difficult financial circumstances.
If firms actually go bust, a pension scheme may be transferred into the Pension Protection Fund, which protects pension entitlements, but reduces them for people who have not yet retired.
In uncertain economic times, with some industries facing a potentially bleak future, some individuals may feel they should rescue their pension from employers that look as if they may soon be in need of rescue themselves.
Again, these individuals will need advice and it will be obligatory if the value of their entitlement is over £30,000.
At the same time, some employers sponsoring DB schemes have come to view DB transfers as a way to reduce their liabilities connected to the scheme.
This may look like a particularly appealing option if an employer is still sponsoring one or more small DB schemes, which may be disproportionately expensive to maintain, may no longer contain current employees among the membership, but may not be a good prospect for a full buyout process.
Some employers have embraced incentive exercises, such as pension increase exchanges or enhanced transfer value exercises to encourage transfers, sometimes helped by the fact that in cases where an individual’s total pension entitlement is worth less than £30,000 this can be exchanged for a lump sum, 25 per cent of which can be paid tax-free.
Conduct of such transfer incentive exercises is currently governed by a voluntary code of practice, although it is possible TPR will take more of an interest in this type of activity at some stage in the future.
New products?
DB consolidators are now entering the market and seeking to take on DB scheme liabilities, albeit this is still a work in progress.
We could expect that members of schemes that join the consolidators experience more frequent, detailed communication from the scheme, which may encourage them to contact an adviser and to consider transferring DB entitlements at some stage.
Whenever a client chooses to transfer DB pension entitlements, advice to them will need to focus on finding alternative means of securing wealth and retirement income from non-DB pension assets, such as a lifetime annuity.
