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Keith Richards: Partial transfers vital for freedoms

Pension transfers have come under a lot of scrutiny in recent years, due in no small part to the highly publicised mishandling of the British Steel scheme early last year. The fallout from that fiasco has risked damaging public trust in the wider profession.

Partial transfers have been an option within pension schemes from as early as 2006. However, it was not until the introduction of the pension freedoms in 2015 that they entered the mainstream, with many more people opting to make drawdowns on savings at will.

Defined benefit transfers are rightly seen by some to be a significant opportunity to maximise retirement savings. Historically, partial transfers had been considered to benefit wealthier individuals most. But today, pension transfers can be attractive to a wider audience, including those on more modest incomes.

Recent figures support the reality that the appetite for transfers is strong, almost tripling to £32.2bn in 2017, according to the Office for National Statistics.

In terms of advice, there is a perception the choices are binary: security versus risk. However, the added flexibility afforded to partial transfers can be attractive to those who wish to take a more active role in managing their pension pots.

This can constitute a good way to access cash from a DB scheme without being fully exposed to the risk incurred by a full transfer. In this regard, partial transfers can be the best of both worlds for some.

Partial transfers typically allow for a more bespoke approach in relation to the specific circumstances of individual clients. In processing a partial transfer, an adviser can weigh up the practicalities of how much risk an individual can withstand, consider how much money is needed to maintain a guaranteed fund minimum and, of course, account for their projected living expenses and broader objectives.

Unfortunately, in the climate of increased scepticism, advisers are becoming less inclined to present the option of DB transfers to clients, despite their benefits. The FCA’s report on the effectiveness of DB transfers released late last year further cast a cloud over them.

It is important the public is reassured that the majority of advisers are dedicated to providing recommendations to deliver the best possible outcomes for clients.

The wealth of the baby boomer generation has almost doubled in the past decade, with 20 per cent of over-65s in the UK now holding in excess of £1m in assets. This amounts to more than £400bn due to be transferred between the generations over the next 10 years alone. Addressing the largest intergenerational wealth gap since records began is one of the key opportunities for our profession.

Broadening access to advice is a key goal for us. Politicians, regulators and the profession at large all have a responsibility to promote a dialogue that emphasises the value of advice and the risks to those who may opt to forego it.

Keith Richards is chief executive of The Personal Finance Society

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There is one comment at the moment, we would love to hear your opinion too.

  1. I have done a split transfer, as opposed to a partial transfer, which worked very well for the client as there were two elements with different retirement ages.

    At the MMI conference it was clear from the panel discussion that trustees have little interest in partial transfers, favouring an all or nothing approach.

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