New data from the Office for National Statistics has revealed that savers have been abandoning their defined benefit schemes with more than £30 billion being taken out of these schemes in 2017 alone.
The figures that were published last week showed that the sum paid out by such schemes in recent years has increased from £5.4 billion in 2014 to more than £34 billion in 2017, a six-fold increase in just three years. Although the statistics don't breakdown exactly which schemes the transfers came from, it is generally accepted by actuaries and other pension experts that the steep rise is accounted for by people swapping final salary schemes for personal pensions.
For many years, defined benefit schemes, the most common of which are final salary based were seen as the pension of choice by many people, thanks to the fact that their payouts are defined and inflation-proofed. However, since the advent of George Osborne's pension freedoms, defined benefit schemes are being seen by many savers as inflexible and more and more are moving towards defined contribution schemes. Transferring to a personal pension gives people more control over their investments and how much money is withdrawn. The transfer values are high too. For example, a £30,000 a year can be turned into a lump sum of £1 million or more. These transfer values have increased in recent years thanks to low-interest rates which have increased schemes' liabilities.
While many people are enjoying the greater flexibility thanks to pension freedoms, pension transfers have been in the news recently with some people potentially receiving 'bad advice' from advisors concerning transfers. In February, the Financial Conduct Authority contacted 45 advice firms probing them on pension transfers since the introduction of pension freedoms.