Advisory service Intelligent Pensions has seen the number of defined benefit transfer requests it has processed increase during 2016 as members seek to take advantage of the freedom and choice reforms.
High transfer values have been a feature of the months following the UK’s Brexit vote, owing to record low gilt yields. Experts suggested that in some situations schemes and sponsors may be keen to derisk liabilities, faced with a challenging investment environment.
Intelligent Pensions provided advice on 183 transfer requests in the 10 months up to October 31, an increase of more than 500 per cent on the 2015 average number of requests a month.
Andrew Pennie, marketing director and head of pathways at Intelligent Pensions, estimated that of those requests, around two-thirds go ahead with the transfer.
A lot of it’s making sure the communication is balanced and clear and doesn’t inappropriately encourage a transfer
Bart Huby, LCP
He credited low gilt yields and the pension freedoms for the increase, but also recognised that there is no longer a form of pension saving which is suitable for the broad majority of members.
“The way in which we access pensions has become far more varied,” he said, adding that increased coverage of stories such as the collapse of BHS has done some reputational damage to pensions.
Offloading liabilities
High transfer values look set to stay, according to an index created by consultancy Xafinity. For a theoretical member aged 64 who is entitled to £10,000 a year from age 65, the transfer value at the end of October was £238,000, down only slightly on September’s figure.
Despite gilt yields creeping up, inflation also rose throughout October, meaning transfer values for inflation-linked benefits have stayed high.
Giles Payne, director at HR Trustees, said that while schemes may be keen to reduce their liabilities, they should be careful to strike a balance between transfer values that encourage members to transfer out and values that are overly generous.
“There’s a desire to make them attractive enough that people consider them, but not so attractive that it’s to the detriment of others,” he said.
Should you quote?
Payne expected the increased press coverage of transfer values to continue to spur member interest in accessing their DB pensions through freedom and choice.
As a result, the number of quotations supplied to members appears to have increased in recent months.
Analysis by consultancy LCP showed a 30 per cent rise in quotation activity in September, with early indicators pointing to a continuation of that level through the fourth quarter.
Bart Huby, partner at the firm, said schemes are currently divided over whether they should provide members with transfer estimates, but that more and more are leaning towards keeping savers informed.
“A lot of it’s making sure the communication is balanced and clear and doesn’t inappropriately encourage a transfer,” he said.
