More than half of those intending to transfer will do so prior to retirement rather than at the point of retirement, according to a Hargreaves Lansdown survey of 1,037 DB benefit holders.
The research found 67 per cent of respondents have no intention of transferring but 7.8% of respondents stated they would transfer. With 6.87 million deferred and active DB scheme members, according to the PPF Purple Book, this equates to 535,860 members. The remaining 25 per cent are undecided.
Hargreaves says that given active members are unlikely to transfer until they cease accruing benefits, come 6th April we could potentially have 1.67 million individuals – one third of 5.06 million deferred members – evaluating their options.
Hargreaves Lansdown head of corporate pension research Nathan Long says: “Most retirees will be well served with a mix and match approach. A bedrock of guaranteed income to cover essential spending in retirement, coupled with some additional flexibility for the non-essentials. Defined benefit schemes can be used to help cover the essential spending.
Transfers can make sense in certain circumstances and often at the point of retirement. These circumstances should be considered the exception rather than the rule.
“Of those sure of transferring, more than half wish to do so before retirement. This is puzzling. For deferred members, a defined benefit pension provides two things other pensions do not, a guaranteed income and the guarantee that the pension is growing all the time.
“A transfer to a defined contribution pension surrenders these benefits and leaves members subject to the fluctuations of the stock market. Typically, transfer values do not adequately compensate members for the benefits being given up. It is common that investment returns of between 8 and 10 per cent are required every year to provide equivalent benefits, should a transfer take place. This makes transferring prior to retirement unrealistic for even the most bullish investor.
“At retirement, the benefit of this increase has already been received and a retiree has a better understanding of their needs moving forward. Most defined benefit members will be best served keeping their benefits intact, but the few instances where a transfer can make sense often occur at the point of retirement.”
Reasons for transferring
| I would prefer a lump sum to an annual income | 17.74% |
|---|---|
|
I would like to pass what is left of my pension pot down to my children when I die |
43.55% |
|
I want more flexible income |
53.23% |
|
I want to retire early |
29.03% |
|
I am in ill health |
1.61% |
|
The pension provides spouse’s benefits which I do not require |
16.13% |
|
Other |
24.19% |
