Surge in number of final salary pensions transfers reported

The volume of transfers out of final salary pensions taking place in the last year has grown by more than 50%, according to Royal London, with the most common transfer value sitting in the £250,000 - £500,000 range.

These values compare with the average house price in the UK coming in at £216,000 as of March 2017.

The research showed that the majority of those transferring are in their fifties, while the typical cash sum offered is between twenty-five and thirty times the value of the annual pension given up.

For many, the key draw of a pension transfer is flexibility, with 83% going ahead with a transfer to secure more flexible retirement income – however 78% were also swayed by large current transfer values.

The draw of freedom and choice found in defined contribution schemes is also reflected by the fact that nearly half (44%) would transfer in order to take their benefits earlier than in their defined benefit scheme.

Nonetheless, advisers remain concerned about the wisdom of transferring out of DB pensions. A majority (81%) expressed concerns about clients losing the certain income from their DB schemes, while 65% worried that the investment risk associated with the transfer would not appropriate to client needs. Over half (59%) also cited their concerns about poor transfer values.

It is clear that growing numbers of people are choosing to exchange the promise of a regular pension in retirement for a large cash lump sum.

Commenting on the findings, Royal London director of policy Steve Webb said: “It is clear that growing numbers of people are choosing to exchange the promise of a regular pension in retirement for a large cash lump sum. For some people, the value of their pension pot will be greater than the value of their house. This makes it all the more important that people think very carefully before making a transfer, and take full account of independent financial advice before making such an irrevocable decision’.

“There is no doubt that the ability to transfer a Defined Benefit pension into a more flexible format is very attractive, provided that the decision to transfer is based on good quality independent advice. But sometimes the process takes far too long, through no fault of the adviser. We need a system where pension schemes provide on day one all of the information needed to decide if a transfer is a good idea or not. This would make life a lot easier for schemes, advisers and, most importantly of all, consumers.