According to new research done by the Association of Consulting Actuaries, British businesses are reporting a surge in demand from current and former employees who want to swap their defined benefit pensions for cash. 50% of the 182 employers that were questioned as part of the research said that they had received transfer requests from at least 5% of scheme members.
The increase comes as a growing number of savers are seeking to move their final salary pension into defined contribution schemes because of the extra flexibility and the superior tax treatment on death. The numbers of people requesting transfers have placed a strain on the administration of some defined benefit schemes. Six out of ten employers have also reported that members are having difficulties in finding advisors prepared to advise on these transfers.
Commenting on the report, ACA Chairman, Bob Scott said:
"There are concerns about both the availability and appropriateness of the regulated advice available to DB scheme members. Other research suggests that only around half of those who took the advice to transfer were properly advised. Of the other half, one-third of recommendations were unsuitable and the remainder were unclear."
"This is disappointing but isn't surprising. DB pensions are complex and varied and their value is not well understood. Comparing a DB pension to uncertain post-transfer investment returns and income choices is fiendishly complex."
"Our survey results confirm the ongoing shortage of IFAs prepared to provide guidance services in this complex area. However, many schemes are additionally noting to our members that where IFAs are providing advice, the questions they pose during the transfer process are varied and time-consuming. The quantum of enquiries and differences in approaches is posing difficulties for administrators and pushing up administration costs. Standardisation in the questions asked would seem to be a sensible step and this may be an area where the FCA could act swiftly to help all concerned."