As millions of pounds are cashed out from defined benefit schemes, pressure is mounting on the regulator from the pension sector for partial transfers to be made more widely available, so consumers are not faced with an ‘all or nothing’ choice.
Standard Life today (30 July) has added it voice to that of other insurers who have called for the partial transfer option to be made a mandatory requirement in the Financial Conduct Authority’s upcoming defined benefit (DB) regulations.
Alastair Black, head of financial planning propositions at Standard Life, said: “The DB to DC conversation isn’t going away.
“So far it has been very black and white, but it doesn’t have to be ‘all or nothing’.
“For many the flexibility of freeing up their pot of DB money is very attractive, but the challenge is giving up the guarantees offered by a DB pension.
“However, with a partial DB to DC transfer they could have a mixture of both, retaining some guaranteed income with the scheme, while taking some risk to provide the greater flexibility they are looking for. This could be a really good solution for many retirees.”
He said the FCA needs to use the opportunity of its review of the pension transfer market to embed the value of partial transfers in the regulations, “so that a partial transfer must always be considered as an option for consumers during the advice process”.
“We recognise that some schemes offer this and others don’t and that’s down to the decision of scheme trustees. Embedding the requirement in the DB regulations on advice for it always to be considered as an option, will ensure it is used appropriately where available.
“If partial DB to DC is more embedded in the advice process, we would expect to see more people deciding to opt for a mix of guaranteed and flexible income at retirement, rather than facing an all or nothing stalemate.”
Royal London has also been making the case for partial transfers for some time.
Steve Webb, director of policy at Royal London, said for people with long service in a single DB scheme, the ability to transfer part of their pension rights while leaving the rest to generate a regular income could be the best option.
“But most DB schemes do not offer this flexibility.
“Partial transfers would help to de-risk this whole process both for investors and for advisers who would be able to recommend a ‘middle way’ where clients could secure a decent income in retirement as well as benefiting from some added flexibility.
“The sooner this becomes a legal right for scheme members, the better.”
However partial transfers are not always popular or even practical for many defined benefit schemes.
Malcolm Reynolds, managing director of JLT Employee Benefits, which administers a large number of DB schemes and processes £750,000 of transfer payments each working hour, paying out £100m of transfers each month, said: “Ninety nine per cent of our clients don’t offer this facility as there is no regulatory requirement to do so.”