A recent article by Kirsten Hastings in International Adviser overviews a research paper from Old Mutual International (OMI) which suggests that fear that defined benefit (DB) pension schemes may be unable to meet their long-term liabilities is driving demand for pension transfers.
The OMI survey found that two-thirds (67%) of those surveyed think that demand is being fuelled by fear DB schemes will not be able to meet their long-term liabilities.
In addition, a similar number (66%) also identified improved transfer value / critical yield as a factor driving demand.
Four in 10 financial advisers globally have seen a rise in demand for DB pension transfers in the past 12 months.
A third (35%) expect demand to continue increasing over the next year.
In the UK, advisers unsurprisingly experienced the biggest growth in demand, with 83% saying they had seen an increase in the last year, with just over half (54%) having seen a significant increase.
Seven out of 10 UK respondents expect demand to increase over the next 12 months.
Almost all (91%) of UK advisers identified the pension freedoms as the catalyst for DB pension transfer growth, compared with 58% globally.
When asked by OMI to predict how much demand will increase over the next year, advisers across all regions expect to see, on average, a third more business.
The high DB scheme deficit and the record low gilt yields are understandably causing concern, OMI said.
Combined with the relatively high transfer values and it is easy to see why the demand for transfers has risen.
However, the insurer cautioned that financial advisers must ensure each case is carefully considered before carrying out a transfer and that they have the appropriate permission from their regulator to conduct such transfers.
Pension transfers away from DB schemes are irreversible, and may not be suitable for all clients.
David Denton, head of international technical sales, Old Mutual Wealth, said: “UK-based advisers have previously been fairly cautious when it came to defined benefit transfers, as decisions were seen as high risk and irreversible.
“With 71% of UK advisers saying they expect demand to increase, we may be seeing the tide turning, with more advisers prepared to take on such cases. It is important advisers continue to assess each case on its own merits as defined benefit transfers will not be suitable for all clients.”
OMI highlighted the recent Department for Work & Pensions (DWP) Green Paper on the ‘Security and sustainability in defined benefit pension schemes’ as a resource that may help reassure some scheme members that the regulator is reviewing this area of activity to ensure the longevity of DB schemes and the protection of its scheme members.
Conversely, the paper may also raise some concerns given one option to maintain affordability is for ‘schemes to reduce liabilities, perhaps by reducing benefits, or restructuring exercises’.
Denton said: “Following the election in the UK, with the Conservatives now operating a minority government, pension issues are likely to have slipped down the agenda.
“There is a risk the response to the Green Paper could be pushed out, but the area of defined benefit pension funding and transfer suitability remains a crucial issue and it is important this remains on track,” he added.
Our experience here at International Pension transfer Consultants limited mirrors these developments. So if you would like to discuss access and control of your pension fund now that pension transfer values are at an all-time high and if you are living in Ireland then please contact us and we can discuss your benefits and options.
If you would like to consider some Irish options we can assist you with our regulated company, Windsor Wealth Management Limited trading as www.earlyretirement.ie
International Pension Transfer Consultants Limited
29 Windsor Place, Dublin 2, Ireland
Phone +353 (0)1 6815293