Research shows transfers from UK defined benefit pensions hit record highs

Published:  26 Jun at 6 PM
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Transfers from UK defined benefit pension schemes now total a record amount of around 50 billion sterling, according to figures released by Mercers to the Financial Times.

The total cash pulled from DB schemes since pension freedoms were brought in two years ago represents the pension savings of some 210,000 members of final salary schemes, and is far higher than the alternative figures provided by Britain’s Financial Conduct Agency (FCA). The FCA’s estimate comes out at between 80,000 and 100,000 transfers each year, with as yet no explanation of the discrepancy forthcoming. Deborah Cooper, a partner at Mercers, described the pace of the flow out of DP schemes as dramatic.

Pension freedoms were welcomed by a huge number of older pension savers unimpressed by the former stipulation that unpopular annuities were the only way forward. Low interest rates and their record effect on transfer values have been credited for the immediate demand for cashing out of DB plans. Some pension savers received as much as 40 times the annual income resultant from staying in their DB schemes. According to research by insurer Royal London, many of the transfers had values between £250,000 and £500,000, a larger amount than the average cost of a home in the UK.

Last week’s announcement by the FCA concerned its proposals to overhaul the rules on advice given on pension transfers in order to provide more protection to those considering withdrawal from DB schemes. The new system will see all transfer-related advice received by DB pension savers regarded by the regulator as personal recommendations. In addition, a comparison of the value of the benefits being given up will replace the current TVA transfer value analysis, and the usual IFA starting assumption that, in most cases, transfers are not suitable will also be removed.

As a result of these and other changes, arranging overseas pensions will become more complicated as expats will be forced to obtain advice from two separate sets of advisors – one based and regulated in the UK and the second in the expat’s country of residence. This change is likely to cause real problems for expats in countries where foreigners are disallowed from working in the sector and local advisors have no knowledge of either the English language or Western pension rules and regulations. For the financially naïve or unwary expat, the chance of either being scammed or losing large sums due to bad advice will also increase.
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