A guide to making
the most of transfer values
18 July 2017
1. Start with easy wins
The first thing to review is whether your scheme is making the most of the options and flexibilities that already exist. This might be as simple as regularly communicating to your members to remind them of their option to take a transfer value.
The next stage would be to review the transfer policy. For example, are members able to take transfers within one year of normal retirement age, and can they take part of the value leaving some benefits behind, known as a ‘partial transfer value’?
Partial transfer values can be particularly interesting for members, and have minimal cost to implement. It is an attractive option for members to take some benefits if they know they have retained a certain level of income (and also easier for IFAs to provide advice that supports this). You may also be able to use them to simplify your benefits structure if benefits with unusual pension increases are transferred first.
Many trustees have not yet permitted partial transfers, usually on the grounds of administrative difficulty or following a discouraging legal opinion. However, legal opinion has evolved since this option first became available and by putting common sense limits on the partial transfer the administrative challenges can be resolved.
2. Focus on which members might be most interested
Having checked you are happy with the options available, the next step is to send tailored communications to the members who are most likely to be interested in taking a transfer value.
It is increasingly popular to include transfer values in retirement packs, so that all members planning their retirement are aware of their transfer option. This can also help address a common trustee concern of regret risk, ie members retire without realising that they had the option to transfer, and then regret it as the option is then no longer available.
Another approach could be to send communications to members over 55, who may be starting to think about their retirement planning - providing a generic reminder of options, or a more tailored analysis showing individual figures.
3. Run an active exercise
The next stage is to spend some money to provide support to your members to allow them to make a considered decision on whether a transfer might be right for them.
The main hurdle to members considering a transfer is the legal requirement to obtain financial advice. To help with this companies often pay for or facilitate advice, by appointing an IFA firm, to provide a service for members at the point of retirement.
Another common challenge is the transfer process itself, including members identifying where they would like to transfer to, and the associated paperwork. One way to help address this is to run a bulk exercise, where the transfer process will be streamlined and joined up with the required financial advice.
De-risking your pension arrangements through a transfer value exercise is just one exercise you can do to address the risks of managing your pension strategy.
Read my blog on how transfer values can help reduce your cash costs and help de-risk your pension arrangements.
Kick off with a clear action plan for your pension arrangements
6-point review for pension scheme sponsors
Our 6-point review for pensions will identify where to focus your efforts and give you a clear framework for action.Find out more