According to data provided in a Freedom of Information request to Salisbury House Wealth by the Pensions Regulator, 80,000 workers transferred out of their employer's defined benefit (also known as "final salary") scheme in the year ending 31 March 2017. We expect virtually all of these transfers will have been into defined contribution (also known as "money purchase") schemes.
We expect that some of this may be a result of generous enhanced transfer value exercises (where the employer boosts the normal level of the transfer value to encourage members to transfer out of the scheme). Indeed, Salisbury House Wealth reported that transfer values have increased dramatically recently. The average transfer value for a DB scheme is around £213,000, but can reach up to £1.2m for a £40,000 income.
We also believe a number of these transfers are likely to be a result of the introduction of the pensions flexibilities which allows many members of defined contribution schemes to access all of their benefits upon attaining age 55.
Questions for employers and trustees to consider:
- Employers: have you considered conducting an enhanced transfer value exercise to reduce the liabilities in your defined benefit scheme?;
- Trustees: have you been approached by the sponsoring employer asking to carry out a transfer value exercise? If so, you need to know what your duties are and what your role in such an exercise is;
- Trustees: Have you had your transfer pack (the papers sent out to members who wish to transfer out of the scheme) reviewed by a legal adviser since April 2015 to ensure they are fully compliant with the complex new statutory requirements?
If you would like to discuss any of these points with us please get in touch.