Thanks to the Pensions Freedoms introduced in 2015, members are becoming increasingly engaged with their retirement options. Transfer activity has risen considerably over this period and our latest research suggests defined benefit (DB) transfers are here to stay.
Endgame is a key focus within the pension's world, with the Pensions Regulator starting to ask schemes what their endgame target is and how they plan to get there. Expected transfer activity is likely to form part of a scheme's endgame strategy, and proactive sponsors can increase the impact of this through the use of transfer exercises.
Our research shows that well-communicated transfer exercises can bring forward the date that buyout becomes affordable, perhaps by 18 months or more, or can reduce the cost of an upcoming buyout. After all, why pay a premium for an insurer to take on a liability, when the member would prefer to transfer? Sponsors also shouldn't rule out further exercises - which could be equally beneficial providing there is enough time between them.
To maximise take-up, an exercise needs to be pitched at the right level, i.e. any transfer enhancement offered needs to be balanced against the potential saving, and focused on an appropriate section of the membership. This is typically those over age 55, who are able to access benefits immediately, which can mean they are more engaged in the exercise. The right communication strategy is essential to make sure that members are engaged in the process, understand the offer and make an informed decision.
Of course, any transfer must also be in the member's best interests. The number of companies advising on DB transfers is diminishing, making it harder for members to obtain this advice on their own. Sponsors providing access to an adviser on a bulk basis (either for an exercise or business as usual cases) are best placed to benefit from transfer activity, and member options more generally (such as pension increase exchange).
