Partial defined benefit transfers would reduce the risks involved for advisers and encourage greater consumer take-up, Royal London policy director Steve Webb has said.
In a column for Money Marketing this week, Webb says more customers are becoming interested in DB to defined contribution transfers because of “eye-watering” transfer values, but advisers remain concerned about insistent clients and potential future complaints.
He says that while DB schemes may have to do more legwork, the risks for consumers and advisers from pension transfers could be reduced if partial DB transfers were more readily available.
Webb writes: “DB schemes might well object to the increased administrative cost of allowing partial transfers – or perhaps providing a ‘menu with prices’ where scheme members can choose how much of their DB rights they want to transfer out.”
“But if such transfers were much less of an all-or-nothing choice then take-up might be much greater, to the benefit of the scheme. In this case, members could retain a guaranteed index-linked income as a floor for their retirement saving but could also enjoy the greater ‘freedom and choice’ to turn income into capital which DC savers already enjoy.”
The FCA is currently reviewing how redress is calculated for unsuitable pension transfer advice because it believes the current system is flawed.
Speaking at a hearing of the Work and Pensions Committee of MPs this morning, Webb also called for more flexibility in what promises were made to DB scheme members.
Webb says: “The biggest thing I would do is build in flexibility from the start, so make the promises soft promises.”
Webb says he would have “absolutely no problem” with conditional indexation – where pension entitlements are linked to the performance of the fund – as an example of this strategy.
The idea did not make it through the last parliament however.
During his time as pension minister, Webb also proposed introducing automatic transfers for small pension pots, a so-called ‘pot follows member’ system, which was eventually dropped after industry pressure. Providers had criticised the idea for increasing administrative costs.