Since the introduction of Pension ‘Freedom and Choice’ in 2015, an estimated half a million people have given up their rights in a DB pension scheme in exchange for a lump sum transfer into a Defined Contribution arrangement. In the vast majority of cases, this involved giving up their entire rights in the DB scheme. But for some individuals, such as those whose entire lifetime pension rights lie in a single DB scheme, a better option might be a ‘partial transfer’, combining some continued level of guaranteed income from the DB scheme with a more modest transferred lump sum. This would help to ensure that the individual had a secure guaranteed level of income through retirement but that they could also benefit from the flexibility of a capital sum.
The new paper includes two new pieces of research to assess attitudes to partial pension transfers amongst advisers, and how far pension schemes are making this option available:
A survey by Royal London of around 350 financial advisers with experience of the transfer market; key findings are:
Around 5 in 6 advisers would like to see more schemes offering partial transfers, with two thirds of advisers thinking this should be a legal right;
Whilst some clients of who might have taken full transfers might in future only take partial transfers, there would be many others who did not take a transfer at all who would now be likely to consider a partial transfer;
The main people likely to benefit from this option would be those with long service in a single scheme (who currently face an all-or-nothing option) and others who would benefit from more flexible access to (part of) their pension wealth; several advisers described a partial transfer as giving ‘..the best of both worlds’;
A survey by LCP of more than 100 occupational pension schemes, which found that:
The proportion of schemes offering a partial transfer option had risen from around 15% when a similar survey was undertaken in 2017 to around 22% now;
Partial transfers were not only offered by large schemes; around two thirds of the schemes in the survey offering partial transfers had assets of under £500m;
Where partial transfers have been offered, initial take-up has often been low, partly because of the need for this option to be effectively communicated in a timely and clear way;
Commenting on the research, Steve Webb, Director of Policy at Royal London and a co-author of the report said: “Pension freedoms give people new options to shape their retirement wealth in the way that is right for them. But for too many people this is an all-or-nothing option, involving giving up all of their guaranteed pension income in retirement. We would like to see far more schemes offering partial transfers, where members can retain a secure pension but also enjoy greater flexibility. This genuinely could be the best of both worlds”.
Jonathan Camfield, partner at LCP and a co-author of the report said: “Our research shows that growing numbers of schemes are offering partial transfers and this is to be welcomed. But many more could make this option available to their members. Although there are technical and practical issues which schemes would need to address, large and small schemes have already demonstrated that these can be overcome. Greater access to partial transfers would benefit members and also schemes, by reducing risks in the DB transfer process”.
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