The new year brings with it a determination to set goals and adopt resolutions. Sorting out finances is a popular one. Indeed, Unbiased.co.uk reported a 57 per cent increase in the number of visitors to its “find an adviser” tool at the start of January.
Pensions, in particular, are high up on the list of issues to sort out, especially for the over-50s.
The industry eagerly awaits the publication of the Government’s green paper on defined benefit pension schemes, which is due any day now. It is widely expected that Work and Pensions Committee proposals to relax the rules for transferring small DB schemes will be adopted.
There needs to be a rewrite of the rules, as the present regulations assume an annuity is always bought, which of course is no longer true. The directions concerning the comparison of a critical yield and an annuity purchase are also less relevant. We expect changes around the indexation, valuation, consolidation and member protection themes too.
A combination of factors make DB transfers more attractive to those wanting the best from their investments this year. For example: DB pension transfer values were 15 per cent higher at the end of 2016 than the previous year, according to Xafinity. There are now 4,339 schemes in deficit, compared with 1,455 schemes in surplus.
The combined deficit of DB pensions increased by £29.2bn to £223.9bn at the end of 2016, according to the Pension Protection Fund – although this is far from the £459.4bn peak reached in August.
Meanwhile, an increasing number of household name pension schemes are finding themselves in the headlines. For instance, Royal Mail recently revealed plans to scrap its huge DB scheme that serves 90,000 postal workers.
It says the current final salary surplus would run out in 2018 and, unless changes were implemented, the bill for servicing it could run to over £1bn a year – a level it said would not be affordable.
Such factors have resulted in more requests to the regulators from senior pension experts to allow partial DB transfers. Partial DB transfers enable a level of income security while investment growth continues.
Indeed, it seems unfair to me that those in defined contribution pension schemes benefit from greater flexibility as well as a record stockmarket high in the form of the FTSE 100’s longest run of successive all-time peaks since its 1984 inception.
We are seeing an increase in quality cashflow modelling, guidance provided and planning tools for transfers. This, along with the regulator clamping down on pension scammers, means it is time for those with DB pensions to have the same trust given to them as members of DC pensions – at least to be allowed to enact partial transfers.
Kim North is managing director at Technology & Technical