From the blog: While many people have been rushing recently to cash in their final salary pensions, others are still torn between sticking with a guaranteed income and transferring all of their benefits.
Plummeting gilt yields have contributed towards record rises in transfer values over the past year.
Partial transfers are relatively uncommon, but should more schemes start to offer them? Members who are lucky enough to have the option of choosing a partial transfer are able to take out part of their pension while having the certainty of keeping the remainder in a defined benefit fund.
Plummeting gilt yields have contributed towards record rises in transfer values over the past year.
Partial transfers are relatively uncommon, but should more schemes start to offer them? Members who are lucky enough to have the option of choosing a partial transfer are able to take out part of their pension while having the certainty of keeping the remainder in a defined benefit fund.
Reducing risk for employers
This can be attractive to sponsoring companies of DB schemes, because a rise in transfers would further reduce risk with regard to future liabilities. As long as schemes take care to monitor liquidity, an increase in transfer requests should not be a problem.
If you offer [scheme members] the option to keep a certain amount of guaranteed benefit in a DB scheme… then they might be more comfortable and more attracted to the idea
Paul Darlow, Xafinity
Final salary pension transfer values ended 2016 up by 15 per cent, according to the Xafinity Transfer Value Index. Despite a slight drop in November 2016, the index rose by nearly 2 per cent the following month. Future movements will depend heavily on financial conditions and inflation expectations, which are both inherently unpredictable, said Xafinity’s Paul Darlow, head of proposition development.
An all-or-nothing decision
If a scheme only allows full transfers, the fact that it is an all-or-nothing decision quite often deters members from taking a transfer at all, said Darlow.
“But if you offer them the option to keep a certain amount of guaranteed benefit in a DB scheme… then they might be more comfortable and more attracted to the idea,” he added.
He said he thinks that more schemes should consider offering this greater flexibility because it would be consistent with the new freedom and choice environment. “In terms of being helpful to members and being aware of the wider pensions atmosphere, I think it’s a good thing for trustees to consider doing,” he explained.
Complicated and confusing
Unfortunately for some, there are a number of things holding schemes back from implementing the option of partial transfers. They are not only “very complicated to administer”, but also “difficult for members to understand”, said Darlow.
The idea of partial transfers “ticks a lot of boxes and make a lot of sense”, said Jon Greer, pensions technical manager at Old Mutual Wealth.
Nonetheless, he noted that it is “very early days” and partial transfers currently remain a rare option for most people.
There is no longer a defined 'cliff edge' of ceasing to work, as more people choose to phase into retirement, Greer noted. Consequently, these changing work and retirement habits could be a key driver when it comes to more schemes offering flexible transfer options.
