About 10 per cent of FTSE 350 companies have encouraged their pension scheme members to transfer out in the past four years, new data has shown.
According to research from Barnett Waddingham – which examined the pension contribution, assets and liabilities data from FTSE 350 companies that have defined benefit pension schemes – transfers at these organisations reduced their buyout deficits by some £2.5bn.
Estimated transfers have fallen from £14.2bn in 2017 to £9.8bn in 2018, but are still almost double the amount paid in 2016, of £5bn.
What's more, in 2017 Barclays paid out £4.2bn in pension transfers - 10 per cent of the total benefit payments paid out of the FTSE 350 companies’ DB schemes that year - which was not matched during 2018, explaining much of the overall drop, Barnett Waddingham explained.
The firm expects transfers to continue being a significant percentage of benefits paid over the next few years.
A transfer exercise involves communicating transfer values to non-retired members (usually, but not always, focussing on over 55s) and offering members access to advice from an IFA to make sure they make the right decision, the consultancy firm explained.
The transfer values quoted could be calculated in line with the best estimate cost of providing these benefits, or enhancements could be offered to encourage take up.
Barnett Waddingham said transfer exercises typically saw a take-up rate of around 20 to 30 per cent for members over age 55.
The firm also noted that the current low-yield environment meant transfers looked attractive even without enhancements, so they may be more cost effective now than in other economic circumstances.
For the FTSE 350 companies and their pension schemes these exercises can bring forward the time to buyout - which means the transfer of pension liabilities to an insurer.
According to Simon Taylor, partner at Barnett Waddingham, volatile markets are increasing the risks DB pension schemes and their sponsors are facing.
He said: “It’s vital that schemes settle their liabilities in as short a timeframe as reasonably affordable, while ensuring they keep the needs of their members front and centre.
“Those [schemes] working towards a longer horizon could see a more meaningful reduction to their endgame timescales following a transfer exercise, perhaps eighteen months or more.
“For these schemes, it may even be worth running more than one transfer exercise, so long as the gap between the two is long enough to reach a different group of employees and generate take up.”
maria.espadinha@ft.com
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