On the go: Defined benefit members’ transfer values can vary by up to 25 per cent depending on the choice of insurer at buyout, research has revealed.
The volume of buy-ins and buyouts reached around £30bn last year, according to Hymans Robertson, sitting at a similar level to the volume in 2020. Activity tailed off towards the end of 2021, however, according to MandateWiredata.
A report from Hymans Robertson underlined the significance of choosing an insurer at the point of buyout on DB transfer values, as these can vary by up to a quarter between companies for the same member, it said.
Commutation factors, meanwhile, can differ by around 35 per cent for the same member. A commutation of pension takes place when a member surrenders part or all of their payable pension from retirement in exchange for a lump sum.
The average scheme’s commutation factor is around 30 per cent less generous than the average insurer, Hymans Robertson said.
The consultancy found that a member exchanging £1,000 every year of pension for tax free cash could lose out on up to £8,000 depending on which insurer their trustees had chosen.
“It should be noted that scheme factors will tend to increase in the run up to buy-out as the scheme de-risks,” wrote Hymans Robertson member options and risk transfer specialist Iain Church.
“Schemes close to buy-out will tend to have higher factors than the average scheme, but it’s important to consider where insurer factors are likely to be as part of the regular review process to ensure no unwanted surprises,” he added.
One in five trustees surveyed in Hymans Robertson’s trustee barometer said they expect to seek buy-in quotations over the next year.
Sixty per cent of respondents, meanwhile, were aiming for full settlement via insurance or transfer to a superfund, compared with just 20 per cent in 2016.
