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Interest in transferring DB pensions rockets

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Data released by Mercer has shown a 60 per cent increase in the number of employees seeking to understand what value they can get from their Defined Benefits (DB) pension scheme. 

The number of people asking Mercer to calculate how much their defined benefit scheme would be worth has increased from around 1,500 people each month in 2014 to over 2,500 a month in March 2015 and is expected to go even higher as more employers and trustees remove barriers to transferring. The data also showed that, while a marked increase has been seen relatively recently, cumulatively around 22,000 people in DB schemes administered by Mercer have requested a quotation on the value of their DB pension scheme since February 2014.

Mercer is one of the largest pension administrators in the UK administrating the pensions of around 1 million people, including 720,000 non-retired people. The requests have been made by employees entitled to transfer following the Government’s decision to allow people more freedom in how they access and spend their pension pots.

According to Matthew Demwell, Partner and UK Head of Member Options at Mercer, says: “We’ve seen a large increase over the last few months. These requests are mostly being instigated by individual members themselves rather than being facilitated by trustees or employers and, at the current rate, would be around 4 per cent of those we administer each year. We suspect that the Government advertising and publicity around its Pension Wise guidance service and the pension announcements made in the 2015 Budget has spurred people to investigate what their DB pension scheme is actually worth.”

In 2014, Chancellor Osborne announced that those in DC pensions would not be required to buy an annuity with their retirement savings.

“It’s clear that these changes have appealed to a number of people. However, these are just quotations. It remains to be seen how many people will actually accept the quotation and transfer out of their defined benefit scheme. It may be that many may decide not to proceed with a transfer.  We suspect that some may be reluctant to progress if they have to pay for financial advice themselves.”

According to Mercer, increasing numbers of employers are willing to pay for at least some advice to help members decide what to do. Many are also reviewing, together with trustees, how much they offer as transfer values to help ensure a fair outcome for both members and schemes in the light of the new freedoms. They are also considering how they can most helpfully communicate the options to members. The consultancy believes that this might raise the number of quotation requests still higher.

Demwell says: “This certainly represents an opportunity for employers and trustees to reduce the sometimes crippling burden of pension costs but, clearly, to ensure that people have enough in their retirement, the process must be carefully managed. It’s clear that, now the Freedom & Choice genie is out of the bottle, things won’t be the same again.”

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