Defined Benefit  

DB enquiries rise as savers worry about schemes

DB enquiries rise as savers worry about schemes

Adviser Killik & Co has seen an increase in enquiries from clients concerned about the stability of their defined benefit (DB) schemes.

According to the firm a higher than usual number of savers have asked for help on their DB pension, citing concerns about the financial security of their employer amid the Covid-19 pandemic.

Svenja Keller, head of wealth planning at Killik & Co, said this was particularly true for some industries which have been severely impacted by the lockdown, such as travel.

Ms Keller said: “Some industries, such as travel, are quite hard hit and there may be long-lasting consequences for some big companies. 

“Those with larger pension entitlements are understandably concerned about this – if their employer went bankrupt, the scheme may end up in the Pension Protection Fund, but in most cases benefits are capped and inflationary increases tend to be less generous.”

The worry among savers has left them questioning whether they should transfer out of the scheme and take a lump sum instead of their guaranteed income for life, Ms Keller said.

She added: “As interest rates are still at record lows, the lump sum option may seem attractive as it could mean a larger transfer value. However, it’s crucial to get advice with a reputable firm – and getting advice is a requirement if the transfer value is over £30,000 or over. 

“It’s a complicated process that is highly dependent on the individual and their pension. Sometimes, the advice will be to not transfer at all, and stay in the scheme."

But Alistair Cunningham, financial planning director at Wingate Financial Planning, said savers should not be overly concerned as there are protections in place and some schemes may even have benefited from the Covid-19 situation.

He said: "I would not be unduly concerned. Although some sectors will potentially see the failure of their sponsoring employer, the alternative of taking the risk off the employer is unlikely to be appropriate for most people.

“They will face the same challenges, if not more, but will not have the benefit of an employer bailing out the scheme if needed, nor the protection of the pension protection fund as a last resort."

He added: "There’s no doubt that schemes will be under more stress, due to the fall in interest rates and commensurate reduction in gilt yields, this may, in some cases, be compounded by the reduction in equity markets.

"But many schemes will have significantly moved away from equities, and may perversely have profited from the current situation."

The market experienced a sharp decline in DB transfer enquiries at the end of March when Covid-19 first hit and the nationwide lockdown took hold.

However, it is now showing signs of recovery and is expected to grow further in the coming months as financial pressures caused by Covid-19 will lead more over-55s to seek access to their funds.