Around 84 per cent of defined benefit (DB) pension scheme members are failing to consider a switch to a more flexible arrangement, raising concerns some are at risk of missing out by not exploring all the financial options available to them at retirement, according to the Financial Conduct Authority’s flagship Financial Lives research.
Only 10 per cent of DB pension savers have thought about switching to a more adaptable defined contribution (DC) pension, and 6 per cent are unsure. Only nearly a third, or 36 per cent, of those who have thought about a transfer, have visited a financial advisor.
HUB Pension Consulting senior pension consultant Seb Sherburn says: “The FCA is clear that in most cases a transfer will not be suitable but that should not stop people approaching retirement from fully reviewing their wider retirement planning options, of which a transfer is one possibility.
“With such large amounts involved you would expect people to be keen to consider their options, to at least analyse the suitability of sticking with their DB scheme to ensure they are not unknowingly missing out on achieving the best possible outcome for them,” he said.
“The fact that the vast majority are not even considering the alternatives raises questions about a blind spot in terms of the information and support they are receiving, leaving the minority who could benefit from a transfer losing out.”
According to Sherburn, in recent years, regulatory oversight of DB transfer activity has been more stringent. Even though the majority of DB to DC transfers—those whose plans are worth more than £30,000—require regulated financial advice, many providers have stopped providing it.
Sherburn adds: “Analysing whether a transfer could deliver better outcomes can only be done on a case-by-case basis, with a deep understanding of the client’s unique situation as part of a wider retirement review.
“It’s important DB members at least sense check sticking with the DB scheme, and this is not difficult or expensive now that most of the firms active in this space offer abridged advice services.”
Sherburn notes that certain member characteristics make DB retirement advice particularly relevant, such as those who have a history of poor health or live a less healthy lifestyle, such as regular smokers, single people without a spouse or partner to receive a dependent’s pension, people who are wealthier and/or have multiple sources of retirement income, and those whose circumstances mean they could benefit from accessing a higher income earlier in retirement, which the DB retirement advice can help with.
According to the FCA’s analysis, 69 per cent of people who switched from a DB to a DC pension in the last four years were happy with their decision, while only 6 per cent of them reported being unsatisfied.
Sherburn adds: “The broader message is that retirement is a financially complex time of life and everyone with private pensions whether they are DB or DC should review their choices.”
