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Pension pot transfers larger than average house

Middle-aged people taking advantage of pension freedom rules typically transfer pension pots worth more than average UK home.

Pension pot transfers larger than average house

The average size of a pension transfer from a 'defined benefit' (DB) or 'final salary' scheme is now larger than the average UK house, according to pension provider Royal London. 

It surveyed 800 financial advisers about pension transfer business they had worked on over the last year. 

It found the volume of transfers out of DB pension schemes had increased by over 50% with pension pots typically between £250,000 and £500,000. The average UK house price was worth £216,000 at the end of March.

Most people taking advantage of the 2015 pension freedom reforms in this way are in their 50s. Typically they are offered transfer values of between 25 and 30 times the value of their annual pension when they move out of their employer-run schemes. 

Since the introduction of pension freedoms there have been concerns that many schemes have offered higher transfer values in a bid to reduce the pension liabilities on company balance sheets. 

The Financial Times yesterday reported that one financial services firm had cut its pension liabilities by 10%, or £100 million, in six months, a record for a UK company, according to Aon, the pension consultancy.

Aon reported that the number of pension transfers had increased six-fold since 2014, the last year before the introduction of the pension freedoms. 

Of the advisers who responded to Royal London, 83% said the ability to have more flexible income in retirement was the main reason people transferred, although 78% said large current transfer values also affected the decision to move out of DB schemes.  

However, 81% of advisers listed concerns about losing the guaranteed income from a defined benefit scheme as a primary factor in recommending against a transfer. 

Royal London director of policy Steve Webb said the survey showed schemes needed to ensure they provided enough information to help determine whether a transfer was appropriate. 

'There is no doubt that the ability to transfer a DB 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,' he said. 

'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.'



4 comments so far. Why not have your say?

Stephen B.

Jun 20, 2017 at 17:16

People still have the option of buying an annuity after the transfer, assuming the transfer value is comparable. And there will generally be a lot more flexibility, e.g. buying an annuity with just part of the fund, using different kinds of annuity, not buying a pension for a spouse if you don't have one etc. (I have a DB pension in payment, and if I were diagnosed with a terminal illness I'd be tempted to offer to marry someone just to stop the spouses pension being wasted!)

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David B

Jun 20, 2017 at 18:26

Who says romance is dead!

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Stephen B.

Jun 20, 2017 at 18:32

As far as I'm aware the only implications of marriage now are financial in one way or another - are there any other legal consequences to being married? So it's not really much about romance any more, just a branch of financial planning ...

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Jun 24, 2017 at 09:22

These generous transfers will will cause a strain or bankrupt the pension schemes for the people who don't take a transfer who could end up receiving reduced pensions when they take their occupational pension.

It will all end in tears.

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