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Our viewpoint

Transfers - make
sure you don't miss your chance to de-risk

Interest in transfer values has soared among pension scheme members in recent months, with our regular survey of activity showing the total value of both transfer quotations and transfers proceeding are up by a factor of 10 compared to the pre-2015 pensions flexibility level. The typical transferring member is now in their mid-50s highlighting that the transfer option is becoming part of normal retirement planning.

From a company cost perspective this is great news as the cost of paying a transfer should be lower than the prudent funding cost the trustees will be asking for at your next valuation, and is much lower than the cost of a buy-in policy (if you’re looking at a long-term aim of taking your scheme off the balance sheet).

We have seen several exercises offering transfer values in recent months, and expect this to continue. Typically around 40% of members engage with the exercise, and around 10-15% opt to transfer, delivering an immediate visible funding and balance sheet improvement, as well as significantly de-risking the scheme.

As a company, how do you make sure you are not missing an opportunity to de-risk your pension scheme at an attractive cost? What should you be doing and which of your members might be interested in transferring?

What to do

There are a range of approaches for companies to take, from reminding members of their options, through to actively encouraging members to consider their options. Where on the scale is most appropriate will depend on your circumstances, from budget and resource availability to the view of key decision makers. 

As well as deciding what you want to do, you will also need to know which of your members are most likely to be interested. The profile of your members is key in informing the most cost effective approach.

Which members might be interested?

At the highest level, this is about offering members flexibility, an aim that appeals to members and pension trustees as well as company decision makers. Since the 2015 pensions flexibility changes there are lots of reasons why members might prefer to take some or all of their pension value somewhere else. 

  • Over 55s – the most common group currently opting to transfer. These members can access their pension savings directly, so there is potential for immediate flexibility, and they are likely to be planning for retirement. They might also be thinking about the inheritance tax position for their estate, a possible reason to transfer pensions into a potentially inheritance tax-exempt DC arrangement.
  • Rules on dependants in your scheme – if a member has no qualifying dependant or spouse, they might be more likely to transfer to get the value of the spouse’s benefits that are unlikely to otherwise be paid.
  • Size of pension – those with modest pensions might be looking to consolidate with other savings elsewhere, whilst current experience is that those with large pots can also be interested in transferring to access their benefits flexibly.

Views of transfers for different pot sizes

Regardless of the approach you take, making sure you consider the options available will guard against the risk of regretting missing a de-risking opportunity. Read my guide on making the most out of your transfer value.

De-risking your pension scheme is one of the many options to reduce the cash costs of your pension arrangement but can also add value when reviewing your pension strategy.