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Up to £50bn pulled from DB schemes in pension transfers

The amount of money being withdrawn through transfers from defined benefit (DB) pension schemes in the UK has reached a record £50bn since the pension freedoms came into force, according to new figures released by professional service group Mercer.

Up to £50bn pulled from DB schemes in pension transfers

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In research provided to the FT, the company, which provides administration for around 7% of the UK’s DB schemes, claims that around 210,000 members have taken a combined £50bn ($63.3bn, €56.7bn) from final salary schemes over the last two years.

The figures are much higher than those released by the Financial Conduct Authority (FCA), which estimates about 80,000-100,000 advised pension DB transfers are taking place each year. 

Pension freedoms

Introduced in April 2015, the pension freedoms give savers over 55 unrestricted access to their defined contribution pension funds, removing the previous requirement to buy an annuity.

The move prompted demand from members to cash out of their DB plans, with low interest rates driving record transfers values, which can be as high as 40 times the annual income a member would receive if they stuck with their schemes.

Research from insurer Royal London found that many cases, the value of pensions being transferred out is between £250,000 and £500,000, greater than the average cost of a house in the UK, which is currently £216,000.

“The pace of the flow out of schemes has been dramatic,” Mercer partner Deborah Cooper told the FT.

“This is a function of low interest rates making the transfer offers seem big but it is also a function of the pension freedoms.” 

FCA transfer advice overhaul

On Wednesday, the FCA published proposals to overhaul pension transfer advice and provide more protection for those considering giving up their DB pension.

Under the new system, all advice provided on pension transfers will be seen by the regulator as a personal recommendation.

The current transfer value analysis (TVA) requirement will be replaced with a comparison showing the value of the benefits being given up.

In addition, the watchdog will also remove the starting assumption for financial advisers that a transfer is not suitable in most cases.

Overseas pensions are also set to be more complicated to execute under new proposals that will require expats to consult two sets of advisers – a UK-based FCA-regulated adviser and one based in the country where the expat is living.

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