Savers losing out half their pensions when transferring out

Pedro Gonçalves
clock • 2 min read

Savers a decade away from retirement are typically being offered half the value of their pension by their scheme when they transfer out, according to new research.

The survey from Royal London and consultancy Lane Clark & Peacock (LCP) of 200 defined benefit (DB) schemes finds pension funds offered their members 57% of their pension value when they requested a transfer.

It shows for members within one year of retirement, the transfer value is, on average, 75% of the “full value” of the pension given up.

“If this group of clients [10 years away from retirement] is told that they are only being offered half the value of their pension, then this is likely, at the very least, to prompt searing questions as to why there is such a discrepancy,” said the LCP report.

Under the FCA’s new rules financial advisers must provide their clients with a value of how much the benefits in their DB scheme would cost today in the open market, called the transfer value comparator (TVC) since 1 October.

This is an estimate of the lump sum needed currently to buy an equivalent pension at retirement to the one being potentially transferred out from.

The survey of 400 advisers tracked the volume of transfer handling compared to 12 months ago. The majority continue to see growth, with one in three having seen an increase of more than 20%.

A total 300 of 400 adviser respondents say there will be no difference to the proportion of cases in which they recommended a transfer following the TVC introduction. Less than 100 advisers say they expect to recommend fewer transfers.

“Our research shows that people ten years ahead of retirement who are considering transferring out of a company pension will typically be told that they are giving up around half of the ‘full value’ of their pension.

“This does not necessarily mean that transferring is a bad idea, but it does show very clearly that those who transfer out are forgoing a great deal of certainty about their future retirement income and that this certainty is of considerable value,” Jonathan Camfield from LCP said.

In 2017, £36.8bn was withdrawn from pension schemes, according to data from HM Revenue & Customs.