Nearly a third of those who transferred their defined benefit pension to a defined contribution pension were not satisfied with their decision, new analysis from OAC has shown. At the same time, DB transfer values continue to fall.
The actuarial consultant analysed figures from the Financial Conduct Authority’s Financial Lives Survey, which revealed that 69% of people who had transferred their DB pension in the past four years were satisfied with their choice.
A further one in ten people with DB pensions said they had considered a transfer, but only a quarter of this group believe they will proceed and only just over a third (36%) had discussed it with a financial adviser.
Brian Nimmo, head of redress solutions at OAC, warned pension savers to “proceed with caution”, noting that DB pensions offer huge security in retirement in providing certainty of income.
“There is a reason most DB schemes are now closed to new members – paying out such generous pension promises is hugely costly. Ultimately, most people are likely to be better served by remaining within their DB pension scheme,” says Nimmo. “In the work we do, we see first-hand the extent of the pension losses that many individuals have suffered through leaving the relative safety of their DB pension.”
“Regulations around financial advice have been a focus for the FCA in recent years and it has tightened up its rules significantly which is a positive in establishing greater trust. Yet it is worrying that little over two-thirds of people who have completed a transfer in the last four years have said that they were satisfied with their decisions and that huge numbers are still considering it.
“We’d urge everybody considering a DB transfer to discuss the matter with a fully qualified, regulated financial adviser to get a true sense of its impact on their standard of living throughout retirement.”
Nimmo’s warning came as DB transfer values continued to fall in the second quarter of 2023.
Figures from XPS Pensions Group showed DB transfer values fell 8% compared to the end of the first quarter, despite a slight rebound in the month of June as a result of a small fall in gilt yields coupled with an increase in long-term inflation expectations.
At the same time, XPS’s Transfer Activity Index fell in June to an annual rate of 25 members in every 1,000 – the lowest on record since the index began. The vast majority (95%) of cases reviewed by the XPS Scam Protection Service in June raised at least one scam warning flag, marking the highest rate of 2023 so far.
Mark Barlow, head of member options at XPS Pensions Group, said: “With continued falls in transfer values seen this quarter, it’s unsurprising that fewer members are taking the decision to transfer their pension. However, we are still seeing members investigating transfers as part of their retirement planning, particularly since annuity rates have improved so substantially.”
Helen Cavanagh, client lead at XPS Pensions Group’s member engagement hub, added: “XPS welcomes the DWP’s commitment to consider changes to the transfer regulations. In particular, we would like to see any changes address the practical issues of the overseas investment flag. This accounts for 40% of all flags raised by XPS, and is the primary driver for our Scam Flag Index remaining over 90% since the legislation was introduced.”
