Consultants report evidence of Osborne boost to DB-DC transfers

The announcement of reforms in this year’s Budget led to speculation that members of DB schemes would transfer out in higher numbers to take advantage of the increased flexibility, coming into force on April 6. This led to calls for a ban on such transfers to stop members giving up guaranteed benefits.

The government ruled out such a ban for private sector schemes. Data from consultancy Mercer, reported by Pensions Expert in September, found there had been no sustained uplift in interest after the announcement for transfer value quotations from the 1m savers whose pensions it administers.

But consultants have reported higher interest from scheme members even before the full flexibilities come into effect. Hugh Nolan, chief actuary at consultancy JLT Employee Benefits, said interest in transfers had risen following the Budget announcement, and would likely remain high.

He said: “The Treasury forecasts say that a third of people in DC schemes will use the new flexibility, but what will the take-up be of transfer values to DC arrangements? I’m already seeing some evidence of people getting close to retirement and wanting to transfer.

When people see Joe Bloggs down the pub saying, ‘I’ve just been on a great cruise, I got the money out of my pension scheme and off I went’, they will get more engaged with it

Hugh Nolan, JLT Employee Benefits

"I have one scheme where over the past year we’ve probably paid as much out in transfer values as we have over the five or 10 years previously, including a member who has just recently reached the point of retirement and taken £1.6m out of the fund.”

Nolan added one scheme had seen a 90 per cent increase in administration queries so far this year, receiving twice the normal volume of queries to its member call centre, with no sign of easing.

He said: “When people see Joe Bloggs down the pub saying, ‘I’ve just been on a great cruise, I got the money out of my pension scheme and off I went’, they will get more and more engaged with it.”

Member-nominated trustees have also been reporting an increase in informal enquiries from members, said Ben Roe, head of the liability management team at consultancy Aon Hewitt. “Trustees are hearing more noise than we’ve heard in the past," he said.

Roe added that data indicate the number of transfer value quotes and actual transfers have both trebled for this year against the past couple of years.

Matthew Demwell, partner at consultancy Mercer, said there was an increase in interest immediately after the Budget announcement, but it was largely from people with little understanding of what the changes meant.

He said: “In the run-up to 2015 there will be another wave of publicity and that’s bound to drive another spike in interest. The challenge for schemes and employers is [to ask] will the confusion also be there? Are you going to get out and talk to your members?”

Demwell added schemes have in the past taken the lead in explaining options to their members, but they may be reticent to do so in the case of member transfers to avoid the appearance of trying to 'induce' behaviour.

He said: “If people transfer to a DC scheme they will usually be entitled to a larger lump sum than in DB. In DB there’s a complicated formulation which dictates the amount of tax-free cash you can take at retirement.

"If you transfer to DC you can take a quarter of your transfer value, which is almost always bigger. If we tell them are we inducing them to do something?”