Six million workers need more help with pension transfers – Royal London

The insurer, which also called for government rules and regulations to be updated to help this group, has published Five good reasons to transfer out your company pension … and five good reasons not to.

The guide is intended to provide factual information to help those in a DB scheme weigh up the pros and cons of converting a salary-related pension into a cash equivalent ahead of taking independent financial advice on a potential transfer.

It addresses key attractions of transferring – including flexibility, the potential for more tax-free cash, inheritance and concerns about the sponsoring employer – and balances these with potential advantages of keeping things as they are, such as certainty, inflation protection and investment risk.

Royal London was keen to stress its guide was designed to offer a factual overview rather than seeking either to promote or discourage DB transfers.

The insurer noted, however, the introduction of pension freedoms and the historically low interest rates of recent years had resulted in a growing interest in converting DB pension rights into cash lump sums that may then be invested in defined contribution (DC) pension arrangements.

Royal London director of policy Steve Webb (pictured) said: “We are trying to strike a balance here as there are a very large number of people who do not even realise the value of what they are sitting on.

“We are not saying ‘cash in your DB pension’ – just that people need to be aware of it, and should think about it. And if the government allowed people to take part of their DB pension then that would give people much less of an ‘all or nothing’ choice.”

Webb’s latter point was one of two particular areas where Royal London’s guide has suggested current policy or regulation may not be working in the best interests of the customer.

‘Slice And Dice’At present, workers do not have the right to ask to transfer out only part of their DB pension. The guide suggested, however, that being able to “slice and dice” company pension rights would allow people to draw a guaranteed income from their state pension and part of their DB pension while also transferring a cash sum to be invested if this was the right option for them.

The other issue highlighted related to the rules on how advisers should assess transfers were written before the implementation of the pension freedoms. These rules are based around the assumption the transferred sum will be invested and then turned into an annuity – or income for life – which will often no longer be what savers plans to do.

Webb said: “Regulations quite properly stress the many advantages of a final salary pension and, for many people, leaving their pension rights untouched is the right thing to do.

“For some, however, the option of transferring out some or all of their pension into cash is worth seriously considering. In particular, a new right for workers to ‘slice and dice’ their company pension, leaving some as a regular income and taking some as a cash lump sum, would offer new options.”

Webb argued rules and regulations in this area should be updated “to the potential benefit of millions of workers,” and that it was “vital” that workers obtain”impartial and expert advice”.

Last month, research from MetLife indicated nearly one-in-three retirement savers would consider transferring from DB to DC pension schemes. And CTC Software managing director and co-founder Nigel Chambers has argued in Retirement Planner that transferring out of a DB scheme, while a rarely considered option, can be a prudent course of action for many more people than is widely thought.