Survey shows final salary members wary of transferring
28 June 2017
Final salary pension scheme members are cautious about moving their benefits to defined contribution schemes because they fear making a mistake in transferring as well as losing the guaranteed retirement income, according to research from Prudential1.
Its study of private sector final salary scheme members shows that 81% had not considered foregoing the guaranteed income for life by transferring a lump sum into a defined contribution pension scheme. Only about 3% questioned said they had actually transferred.
About 29% of final salary scheme members surveyed say they would not transfer because they don’t want to make a mistake, while one in five said they were wary of giving up the guaranteed retirement income.
The research found that 34% were aware that transfer values are currently high. Prudential quotes figures indicating that a 64-year-old entitled to a final salary pension of £10,000 a year could cash it in for a lump sum of around £235,0002. Defined benefit schemes in the UK have nearly 11 million members3 who could potentially transfer their benefits.
Just 18% of those questioned for the survey said they have requested or received a transfer value from their final salary scheme provider in the past year, and 29% of them said that the transfer value they received was higher than expected.
The research found that the key driver for members transferring out of a final salary scheme was control over access to their pension fund, rather than the high transfer values currently available.
Around 30% cent said they would consider transferring because they want control over access to their pension fund, compared with 24% who would consider moving because of high transfer values. However, Prudential’s study found that one in 10 would also consider a transfer in order to pay off debts.
Recent media reports have covered how some Pension Funds have launched communication exercises to warn their members about the risks of transferring out, in an attempt to make people think twice about leaving the scheme and keep them under the guidance and governance of trustees rather than left to their own devices in drawdown, or vulnerable to scammers.
Stan Russell, a retirement expert at Prudential, said: “Interest in transferring final salary pensions has increased dramatically since 2014 for two reasons. Transfers values are currently high and the Pension Freedoms reforms also mean that a transferred final salary pension can now be more easily left as part of an inheritance.
“However, it is reassuring to see that so many consumers are cautious about transfers. They are right to be wary of giving up a guaranteed income for life, and instead having to rely on the investment returns from their pension fund for income over a retirement that could last 20 or 30 years.”
1 Research conducted by Consumer Intelligence among 1,047 adults with private sector final salary or defined benefit pension schemes between February 28th and March 1st 2017
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