Pensions - Articles - Five million in salary related pensions not getting advice

  The paper is based on data from two specially-commissioned surveys - one of occupational pension schemes and one of financial advisers. 

 Royal London Director of Policy, Steve Webb said: “The introduction of pension freedoms has given people with pension investments a wide range of new choices about how they shape their income in retirement. But millions of workers who have rights in salary-related schemes with their previous employers may not be aware that they also have rights which could also be moulded to better fit their individual needs. For those considering transferring out of a salary-related scheme, the option of a partial transfer would offer a welcome new flexibility and is strongly supported by advisers. More should also be done to streamline the process of transfers to remove unnecessary delays”.

 Commenting on the results, Jonathan Camfield, partner at LCP said: “Members of occupational pension schemes do not need to have a one-size-fits-all experience with their pension. Most schemes already offer valuable flexibilities to re-shape their pension benefits within the scheme as well as options to transfer rights out into a different arrangement. Members need easier access to high quality and cost effective advice to help them understand what the options are and how to make the best use of them, and schemes should consider whether further options could usefully be offered and whether earlier and more effective communication can help. ”

 Options available to pension scheme members:

 Members of salary-related pension schemes can simply take the scheme pension at the normal scheme pension age if they wish to do so. But those who are no longer active members of the scheme (known as ‘deferred’ members) may not be aware that in most cases they have a range of options to re-shape those benefits. These choices are generally irreversible and making the right choice could make a big difference to the member’s financial wellbeing, their quality of life in retirement, and the money that passes to their family.

 Options often available include:

 - The ability to take their pension early at a reduced rate or later at an enhanced rate;

 - The ability to exchange some or all of their pension rights for a cash lump sum;

 - The option to give up part of their scheme benefits (such as enhanced inflation protection) in exchange for a higher starting pension;

 - The chance to transfer some or all of their pension out into a Defined Contribution arrangement;

 - The option of a higher initial pension to fill the gap between scheme pension age and state pension age.

 Summary results of LCP and Royal London surveys:

 The survey of occupational pension schemes found that most schemes had not significantly changed the way in which they communicate with members and with deferred members in particular, despite the introduction in April 2015 of ‘pensions freedoms’ designed to give people more choice about how and when they take their pension benefits. Key findings from the survey were:

 - Only 10% of schemes write to members well before their normal pension age (typically from age 55) about their pension options – the remaining 90% generally contact members for the first time as they approach their normal pension age (typically 60 or 65);

 - Nearly all schemes have an option for deferred pensioners to take early retirement, but four in five do not highlight this option to members, and retirement communications generally arrive too late for members to make use of early retirement options;

 - Whilst a rising proportion of schemes are quoting transfer values in retirement communications (now 30% compared with 20% two years ago) the majority do not do so.

 The paper also reports on a new survey of over 800 financial advisers who are involved in advising on transfers out of salary-related pension schemes. As well as reporting a surge in demand for transfers, advisers strongly supported two key changes to the regulations around transfers in order to improve experiences for clients. These included:

 - A right to a partial transfer of salary-related pension rights: more than half of advisers said that they ‘strongly supported’ giving scheme members the option of transferring some of their pension rights whilst leaving some within the scheme; the scheme survey suggested that only around 1 in 6 schemes currently offers this option to scheme members;

 - A requirement on schemes to provide comprehensive, standardised information about scheme rights when providing a transfer value quotation – a majority of advisers said that they ‘often’ or ‘sometimes’ had cases where a lack of information from the scheme meant it was impossible to process transfer advice within three months, meaning that a fresh transfer quote had to be obtained.

 Recommendations:

 The paper makes a number of recommendations which would improve the experience and outcomes of scheme members. These include:

 - Schemes to provide more timely and comprehensive information to members about their options; this could include annual statements and updates from age 55; schemes would also need to do more to support members in accessing high quality independent financial advice;

 - A new legal right to a partial transfer of rights under a salary-related pension scheme (subject to suitable constraints);

 - A duty on schemes to provide comprehensive and standardised information about scheme rights when issuing a transfer value quotation;

 - An update to FCA regulations around advising on transfers, reflecting the world of ‘pension freedoms’;

 - A greater focus by regulators on advice post retirement, to ensure that individuals are supported in managing relatively large transferred amounts on an ongoing basis in a cost effective way. 

 Helping DB members make better retirement choices - full report