Xafinity says that trustees will want to review their future funding plans following the announcement that transfers of pension benefits from private sector Defined Benefit schemes to Defined Contribution schemes will continue to be allowed.
The Government estimates that between 10 and 20% of members might transfer out of DB schemes rather than drawing their benefits, but Xafinity believes that the new flexibilities available to members of DC schemes from next April may mean that some schemes see significantly more members than this choosing to transfer.
Xafinity recommends that trustees analyse the impact that an increase in transfers could have on their scheme. Whilst there is likely to be a short term focus on protecting the funding position, trustees may also want to consider the impact on their longer-term funding and investment strategy since an increase in transfers could significantly impact their current plans.
Paul Darlow, head of proposition development, Xafinity, said: “Given the recent announcement, trustees and employers will want to consider whether their funding and investment strategy remains appropriate given there is the potential for a significant portion of liabilities to be discharged earlier than anticipated. What is the impact of these payments on future strategy? If significant liabilities are expected to be transferred out over the coming years, this could significantly reduce the term of the remainder and lead to a reconsideration of the options available. For example, does an insurance solution become more realistic in the medium-term, and do the Trustees and employer want to start working towards that aim?”
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