Defined Benefit  

Pension schemes urged to offer partial DB transfers

Pension schemes urged to offer partial DB transfers

Royal London has called for more pension schemes to offer partial transfers after a survey of advisers found five in six supported the option.

A joint research paper by Royal London and consultants Lane Clark & Peacock, published today (October 1), highlighted the advantages of wider access to partial DB transfers for advisers, pension scheme members and trustees.

A partial transfer occurs when some of the value of the DB scheme is transferred to a defined contribution pot while leaving some DB rights behind.

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Pension funds are not legally obliged to offer partial transfers, but trustees can choose to. 

For example Ford introduced partial DB transfers this year which allowed members who make contributions to keep half of their pension and transfer the other half.

A survey by Royal London of 350 financial advisers with experience of the transfer market was included as part of the policy paper and found that in general the majority of advisers welcomed partial transfers as it offered their clients more options.

About 86 per cent of advisers said more schemes should offer partial transfers, with two in five in favour of this option stating greater flexibility in retirement planning as their main reason.

Sir Steve Webb, director of policy at Royal London and a co-author of the report, said: “Pension freedoms give people new options to shape their retirement wealth in the way that is right for them.

"But for too many people this is an all-or-nothing option, involving giving up all of their guaranteed pension income in retirement.

“We would like to see far more schemes offering partial transfers, where members can retain a secure pension but also enjoy greater flexibility. This genuinely could be the best of both worlds”.

Several advisers also pointed out that a partial DB transfer could allow clients to have a combination of a secure income and greater flexibility over the remainder of their pension pot.

Many advisers thought the option would enable them to recommend a transfer in situations where they would otherwise recommended against it.

Royal London also found that there was strong support from advisers to make partial transfers a legal right. But one third of advisers raised concerns about the potential complexity for both schemes and members.

Two thirds (66 per cent) of advisers said some of their clients who took full DB transfers would be likely to take a partial transfer instead if it had been on offer, while 72 per cent of advisers thought some of their clients who refused a DB transfer would have been likely to take a partial transfer.

Overall, advisers were more likely to think that greater availability of partial transfers would lead to increased asset flows out of DB schemes, though opinions were somewhat divided on this issue. 

Other positives of DB partial transfers stated by advisers included potentially enhanced death benefits and improved access to tax free cash.