“The changes coming into effect in April are unchartered territory, both for DB scheme members and trustees. It’s essential that DB trustees have proper guidance on managing member transfer requests, as the consequences for members, either from making poor decisions or failing to make the right ones, could be far-reaching.
“The retirement revolution puts the spotlight on trustees in two ways. They have a duty to act in members’ best interests which may span to engagement to help prevent them from making bad decisions in light of the new freedom they’ll have, but also to educate them on the options that are available them.
“The key to ensuring that decision making is sound is providing members with access to quality, bespoke guidance and advice and helping them understand the range of options they now have. Answering the question of whether or not to take a transfer, and the magnitude of that, will very much depend on the individual member and their circumstances.
“Making a full transfer from DB to DC will make sense for some – such as those in ill-health who may get a better deal from transferring to DC to buy an enhanced annuity, or those without a spouse – but full transfers could be a very bad decision for many. Valuable DB benefits should not be given up lightly. Once the switch is made out of DB, it can’t be made back.
“Where we may see considerable demand for a DB-DC switch is around partial transfers, where scheme members wish to access some cash from their DB scheme for a variety of reasons. In our experience the vast majority of DB retirees take tax free cash. From
April 2015, many will be able to access cash on better terms by transferring some DB benefits to DC pots. Currently individuals receive around £15 for every £1 of pension given for tax free cash; but in today’s low bond yield environment they could get more like £25 for every £1 of DB pension surrendered if they move to DC instead. It’s easy to see why this may appeal to some.
“Whatever the individual’s circumstances, members of DB schemes will be making decisions with potentially far reaching consequences. The need for them to do this in a safe and controlled environment, with access to bespoke and high quality advice, could not be greater.”
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