Savers 10 years away from retirement could lose nearly half of the value of their defined benefit pension if they choose to transfer, according to new research.
The analysis from Royal London and consultancy Lane Clark & Peacock finds for those people the transfer value on offer will on average only be around 55 per cent of the “full value” of the pension given up
It shows for members within one year of retirement, the transfer value is, on average, 75 per cent of the “full value” of the pension given up.
Despite these statistics, the research shows advisers are expecting the impact of the FCA’s new rules on pension transfers to have little impact on people’s decision making.
Advisers have been required to show their clients how the transfer value they have been offered by their company pension scheme compares with a transfer value comparator since 1 October.
This is an estimate of the lump sum needed currently to buy an equivalent pension at retirement to the one being potentially transferred out from.
The survey of 400 advisers tracked the volume of transfer handling compared to 12 months ago. The majority continue to see growth, with one in three having seen an increase of more than 20 per cent.
The paper says: “Anecdotally, there has been a perception that the DB to DC transfer market may have peaked, partly because of negative press coverage around the British Steel case, and the wider coverage suggesting that some people who have transferred have experienced poor outcomes.”
Even accounting for strong market headwinds, the paper says DB to DC transfers remain “relatively buoyant.”
A total 300 of 400 adviser respondents say there will be no difference to the proportion of cases in which they recommended a transfer following the TVC introduction.
Less than 100 advisers say they expect to recommend fewer transfers.
Royal London director of policy Steve Webb says the TVC introduction could prove useful however, and pension holders should continue to be well-educated on choice.
He says: “With around 200,000 people having transferred out of a company pension in the last couple of years, and thousands more doing so every week, it is vital that they have a clear understanding both of the advantages of transferring and of the valuable benefits they are giving up. If this new way of assessing transfer values results in better informed conversations with impartial financial advisers before decisions are made, this would be a good thing.”
LCP partner Johnathan Camfield says people transferring out of company pensions will likely be told they are giving up at least half the full value of their pension.
He says: “This does not necessarily mean that transferring is a bad idea, but it does show very clearly that those who transfer out are forgoing a great deal of certainty about their future retirement income and that this certainty is of considerable value.”