Analysis of the data in the Financial Conduct Authority’s (FCA) Financial Lives Survey by actuarial consultancy OAC (part of the Broadstone Group) demonstrates the potential consumer danger that still lurks in the Defined Benefit (DB) transfer market.
The figures uncover that under seven in 10 (69%) of people who had transferred their DB pension into a Defined Contribution (DC) arrangement over the past four years were satisfied with their choice.
However, despite such lukewarm approval over a significant financial decision a further one in ten (10%) with DB pensions said that they had considered a transfer.
Of these, a quarter (25%) said that they think they will proceed with a transfer while only 36% said that they had discussed the issue with a financial adviser.
Brian Nimmo, Head of Redress Solutions at OAC, said that DB transfers could lead to positive outcomes but customers should proceed with caution and best-in-class financial advice.
“Defined Benefit pensions offer huge security in retirement in providing certainty of income,” he said. “There is a reason most DB schemes are now closed to new members – paying out such generous pension promises is hugely costly. Ultimately most people are likely to be better served by remaining within their DB pension scheme.
“In the work we do, we see first-hand the extent of the pension losses that many individuals have suffered through leaving the relative safety of their DB pension.
“Regulations around financial advice have been a focus for the FCA in recent years and it has tightened up its rules significantly which is a positive in establishing greater trust. Yet it is worrying that little over two-thirds of people who have completed a transfer in the last four years have said that they were satisfied with their decisions and that huge numbers are still considering it.
“We’d urge everybody considering a DB transfer to discuss the matter with a fully qualified, regulated financial adviser to get a true sense of its impact on their standard of living throughout retirement.”
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