Members should have access to good guidance for DB transfers to limit potential issues and improve member outcomes, writes Kim Kaveh.
The introduction of Freedom and Choice in 2015 triggered swathes of over 55s accessing their defined contribution (DC) pensions.
This, along with high transfer values, has resulted in a large volume of members requesting transfers from their defined benefit (DB) pensions.
A DB transfer enables a member to give up scheme benefits in return for a cash value that is invested in another pension scheme; a large number of members have requested to do this.
One example comes from a Lemonade Reward study, which contained feedback from 63 companies representing 1,075,605 members, conducted from 2 to 17 November last year.
It reveiled that fewer than a fifth (16%) of schemes received more than 100 transfer requests per month, under half (44%) had 10 to 100 and 40% received fewer than 10 transfer requests per month.
Royal London also recorded more than 50% growth in the volume of transfers out of final salary pensions from March 2016 to March 2017, in a survey involving more than 800 financial advisers.
Lemonade Reward managing partner David Pugh thinks the rise in transfer value requests and actual transfers will continue into 2018.
"I am aware there are companies where transfer value requests are still quite low, but they're starting to go up. I think different industries are at different stages of this increase, but we won't see them drop off anywhere."
Members transferring out of a DB scheme with a value of £30,000 or more must take regulated financial advice.
DB transfers have been a matter of concern for the Financial Conduct Authority (FCA), which revealed in October that advice in more than half of the cases where the recommendation was to move the retirement pot was unsuitable or unclear.
Xafinity head of DB growth Sankar Mahalingham says this will have to be sorted, and schemes play an important part in resolving the issues.
"We are now in a stage where many people are looking at this, and trustees must engage with the issues.
"A member is only entitled to a quotation once a year, generally, which could cause problems and there is always a risk a transfer value could go down in these situations."
It is therefore arguable that as the volume of transfer value requests is evidently so high, it could save schemes time and relieve pressure if they ensure members have access to useful information and guidance alongside transfer value quotations.
This way, members can make informed decisions instead of risking getting poor advice, and it could stop advisers having to chase schemes and risking a transfer value quote expiring.
A quote expires if it is not taken up within three months, a new quote could cost several hundred pounds, and the value quote may not be as high the second time round.
Mahalingham reiterates this, and adds: "I think anything that gives members more information and help is useful, rather than having to keep on replying to follow up queries, and trustees should ensure members have the appropriate information.
"That's not telling them what they should or shouldn't do, but providing them with more information so then they're able to make the right choice for them."
Mahalingham's argument can arguably be supported as the same Lemonade Reward study revealed 63% of employers did not have an online portal to help members explore transfer options, and just 15% of schemes provided transfer values through an online portal.
Lemonade Reward set up an impartial advisory service for DB transfers after its research found many members lack access to good advice and information.
Launched in November, it deals with issues around transfers and ensures members maximise their retirement income, and is available to current and past employees in a deferred DB scheme.
Pugh highlights: "The service is definitely delivering better outcomes, and that's the most important thing trustees and employers are concerned about, so it will help more people make the right decisions."
But it is important to note that the FCA has not been blind to the need of helping people make the right choice.
The Financial Conduct Authority (FCA) closed a consultation in September on a new, more modern system for advising on DB pension transfers.
The proposed Appropriate Pensions Transfer Analysis (APTA) system seeks to properly compare the accrued benefits being given up by a DB member planning to transfer out, with what they might get in DC.
Mahalingham says he supports the FCA's proposition as trustees may be happier to be involved in the transfer process and think, "ok if we provide some information, we know it's not going into a black hole."
He adds: "Then advisers will be able to take that information and give the right advice to members too. So hopefully this will encourage more trustees to engage on their side, and to provide more of the information that advisers need."
In addition, Pension Wise, the government's free impartial retirement guidance service, provides members with guidance on transfers.
In a report published on 11 December, the Work and Pensions Committee said the government should amend its Financial Guidance and Claims Bill to make Pension Wise guidance the default pathway for freedom users.
The surge in DB requests and transfers has evidently caused concern for the industry. However, if members have access to good guidance and information, it will help them make informed decisions, and potentially relieve some pressure on schemes. Industry and government initiatives are on the right path to ensuring this happens.
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