The research looked at 15,700 members of DB schemes who have been offered independent financial advice at the expense of their pension scheme’s sponsoring employer since April 2015. All of these members were aged 55 or over but had not started drawing their pension. The research, which uses data supplied by leading financial advisory firms, found that:
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50% took up the offer to speak to a financial adviser;
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Of those who spoke to an adviser, over a third (36%) chose to transfer out of their DB scheme;
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45% of those transferring bought an annuity, 35% chose to take their funds over time through drawdown and 20% took the majority of their new DC fund as cash.
Stewart Patterson, head of liability management at Willis Towers Watson, said: “Members of DB schemes don’t always realise that ‘pension freedom’ does not automatically extend to them, still less that they would usually have to take financial advice before being allowed to take advantage of it*. The cost of this advice can put people off examining their options, so it will make a big difference if the employer pays for this.
“Anyone considering giving up a DB pension should think carefully before doing so, but many DB members will like having the choice. It’s common for people to have several DB pensions from different employers – so transferring one pension can sometimes be about getting a mixture of stable lifetime income and savings that the individual can dip into as they wish.”
The survey data suggests that members with bigger DB pensions were more likely to transfer out. Members with a transfer value of over £250,000 were the most likely to transfer out, with a take-up rate 10% higher than the overall group.
Most of the members covered by the survey were offered free advice as part of a one-off exercise run by their scheme. However, some of the schemes included transfer values and details of the options in standard retirement statements, with an offer of paid-for financial advice if the member wanted to consider taking the transfer value instead of retiring in the scheme. In these cases, the survey found that over three-quarters (78%) of members who spoke to an adviser transferred their benefits.
Willis Towers Watson’s Member Choices Report also looked at other options given to DB scheme members. In total, the survey covers a variety of offers made to over 90,000 members in almost 100 different DB schemes.
The full range of flexibilities is not available to DB members who have already retired, but offering pensioners the option to exchange future pension increases for a higher flat pension (called a Pension Increase Exchange or PIE) provides some choice.
Over a quarter (27%) of pensioners in the survey have chosen to take up a PIE option since April 2015, which equates to over 13,000 individuals out of over 47,000 given the option.
Members with small DB pensions, valued at under £30,000, can be given the option to exchange their pensions for a one-off lump sum. Schemes that implemented a so-called ‘trivial commutation’ exercise achieved typical take-up rates of approximately 50%, and in some cases as many as eight-out-of-ten took up the option.
Stewart Patterson said: “Many schemes have introduced a combination of member options to target different groups of their membership. An understanding of the scheme’s membership profile can help identify which type or types of exercise are the best option to manage a scheme’s risk at a point in time. A well-run member option exercise can be a win/win/win scenario for members, employers and the scheme. The members have more choices, the sponsor can reduce their pension risk and the trustees increase the scheme’s security while responding to members’ desire for flexibility.
“Scheme sponsors and trustees who have not already considered making flexibilities available may wish to do so, especially given the evidence of member demand. Increasingly, it is trustees who are instigating and implementing these options and the new Code of Good Practice on Incentive Exercises has been re-worded to acknowledge this.”
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