15/06/17Increase in the number of Defined Benefit pension transfers

Figures from Xafinity suggest that the number of Defined Benefit (DB) pension transfers has risen significantly in recent months, with a 166% increase recorded in the first quarter of 2017.

Research shows that the number of DB (also known as Final Salary pension) transfers completed remained stable until October 2016, after which activity more than doubled.

These figures are supported by a report from The Pensions Regulator (TPR), who have revealed that 67,700 people transferred out of DB pension schemes last year, with the number expected to rise.

The surge of people transferring from DB to defined contribution pension schemes has caused many to look towards the Financial Conduct Authority (FCA) to ensure that advice on partial and full transfers remains within regulations.

Why is the number so high?

Paul Darlow, the head of proposition at Xafinity, commented: “Financial conditions over the past year have resulted in an increase of ‘partial transfers’ as well as full transfers. It is difficult to keep track of the amount left in each part of a pension pot after a partial transfer, as pension pots include many different ‘tranches’ that can have different value increases attached to them, according to when the policy was taken out.”

The upward trend is predicted to continue, as the transfer values recorded by Xafinity’s Transfer Value Index (TVI) also remained high. The TVI:

  • Rose to £237,000 in February (compared to the record high of £244,000)
  • Fell to £235,000 in March

The TVI tracks the transfer value that would be provided by an average DB pension scheme to a 64-year-old member entitled to a pension of £10,000 per year starting at age 65. The value rises each year in line with inflation.

The FCA’s response

The increase in the number of people opting to transfer their DB pension has caused many to push for a regulatory consultation, with Steven Cameron urging the FCA to begin its report urgently.

He commented: “This increase in the number of people opting to transfer their DB pensions has put regulation of this market firmly in the spotlight. While the flexibility around partial transfers would be a good thing there are still barriers to overcome, with the main issue for many scheme providers being the administration complexity.”

The FCA has published a consultation paper on DB transfers, outlining a series of proposals and questions, which will be reviewed over the coming months.