Ford set to offer partial transfers

A spokesperson for the motoring giant confirmed that the offer to UK members will comprise half scheme pension, half their cash equivalent transfer value, and half their maximum tax-free lump sum.

Partial transfers are a relative rarity in DB – as of July only around 15 per cent of schemes gave members this option, according to financial advice company Wealth at Work. Despite this, the option has proved popular among trustees, 75 per cent of whom are in favour of the measure according to a recent XPS Pensions survey.

It gives people the chance to mix and match the benefits of both the flexibilities of DC and the security of DB

Hugh Nolan, Spence & Partners

Supporters of partial transfers say they would help members to pace their retirement spending and avoid the binary choice between cash and guaranteed income. Sceptics meanwhile are worried about the administrative challenges of carrying them out.

A Ford spokesperson disclosed that the company has agreed to implement partial transfers for active employees,  allowing them to split their pension in half at the point of retirement, while also taking 50 per cent of their CETV and 50 per cent of their tax-free lump sum.

“This is currently going through final stages of implementation and we hope to implement soon,” the spokesperson said.

Partial transfers will mean fewer broke pensioners

Alastair Rush, managing director at financial advisory firm Echelon Wealthcare, learnt of the news during his recent visit to Bridgend, where Ford has a factory.

A big supporter of partial transfers, he argued that the Ford members will no longer be left with a binary choice over whether to transfer out – an all-or-nothing gamble that could have long-lasting consequences.

Rush has personally witnessed the fallout from transfers that have gone wrong, having led a taskforce of financial advisers into Port Talbot last year after a spate of transfer scams that affected thousands of former British Steel workers.

“It’s not going to mean that fewer people are going to get exposed to scams,” he said, but added: “I think we will see fewer people who are destitute in old age as a result of bad transfer advice, but I also think we will see fewer people who have got a big buffer zone of comfort in old age as well,” he said.

Rush has spoken with a Ford employee at Bridgend who said there are “200 people or so at Ford in Bridgend sitting on transfer values of roughly £700,000, and they didn’t know what to do”.

Union GMB has said it fears for the future of Ford's Bridgend plant, according to WalesOnline, following comments made by EMEA president Steven Armstrong

“If Ford in Bridgend does close, which is a possibility, then it’s not unnatural to assume that a lot of people will decide to take the opportunity to retire early and transfer out, because you can with the Ford scheme at age 58 without an actuarial reduction,” said Rush.

A Ford spokesperson said it is true some employees can retire without an actuarial reduction from age 58, but this is dependent on the pension scheme and length of service.

The spokesperson added that the factory had recently begun the production of a new engine, following "significant investment" in a new manufacturing facility.

Combining the best of DB and DC

Hugh Nolan, director at Spence & Partners, described Ford’s partial transfer offering as “brilliant”, owing to its simplicity.

“It’s not giving people too much choice that might bewilder them,” he said, calling it “a straightforward option on the paper”.

“It gives people the chance to mix and match the benefits of both the flexibilities of DC and the security of DB,” he added.

Girish Menezes, head of administration services at Premier Pensions Management, praised Ford’s proposal for setting a fixed amount and offering “quite a clear framework in terms of what’s possible”.

“I do like flexibility,” he said, but added that “the more flexibility that’s given, I think there are more opportunities for members at some point to come back to the trustees and the sponsors with some sort of mis-selling claim.”

New rules required

Momentum is growing for legislation that will compel schemes to offer members their right to a partial transfer.

Last year, a joint report by provider Royal London and consultancy LCP called for new rules that would permit the offering

Jon Greer, head of retirement policy at Quilter, agreed that legislation would be needed.

“Offering legislation up or requiring schemes to look at this might be a good thing, and then members would have a less challenging decision that they’d have to make.”