Three-quarters (75%) of advisers have seen an increase in the number of requests to transfer final salary pensions since then-Chancellor George Osborne’s pension freedom reforms in April 2015, according to research by Retirement Advantage.
Of the 107 advisers surveyed in May and June 2016, two-fifths (40%) said the number of people enquiring about a transfer had increased significantly. Just a quarter (25%) of advisers said the level of enquiries had remained steady.
“Final salary transfers have long been seen as a taboo, but the subject has been thrown into much greater focus since the pension freedoms were introduced,” said Retirement Advantage pensions technical director Andrew Tully.
“Many schemes are currently offering transfer values higher than the historic average and, as a result, advisers have been able to match the benefits from the final salary arrangement using an annuity, leaving a residual fund available in drawdown.”
He added: “This can be easily done through one product using new hybrid solutions, creating additional flexibility, better death benefits and tax-planning opportunities compared with a final salary pension.
“The ability for family to inherit the remaining pension fund free of inheritance tax is a strong driver for some, compared with the often poor level of death benefits available for someone who has left their final salary scheme.”
Inheritance tax (IHT) has proven to be a key factor in the growing number of transfers away from defined benefit (DB) schemes. Prudential research found two-thirds (64%) of advisers have seen clients change retirement plans as a result of Osborne’s IHT reforms. Furthermore, IHT receipts have hit record levels since the reforms were announced in April 2015.
As interest in DB transfers grows, the Financial Conduct Authority (FCA) is currently assessing the redress methodology used for pension transfer advice, which was originally developed for the Pensions Review of the 1990s. The regulator has said it intends to consult on changes to the current methodology in the autumn.
The long-term viability of DB schemes has also been under scrutiny by MPs on the work and pensions committee and it is expected to launch a probe into the schemes.
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