DB to DC transfers: the current landscape
Transfers from defined benefit (DB) schemes are a crucial topic at the moment. Huge amounts of money have been transferred out of schemes over the last few years, triggering a flood of press coverage and commentary.
It is vital your members make informed decisions that lead to good outcomes from transferring in order to have flexible access to their benefits.
In the first in a series of articles, we take a look at the DB transfer landscape from the viewpoint of DB schemes and the member adviser market, offering our thoughts on how transfers will evolve over the next few years.
Further articles over the next few months will cover improving the member experience, putting in place a support framework to help members make better decisions and the make-up of a 21st century defined contribution (DC) decumulation vehicle fit to receive DB transfers.
There is a lot to take in and make sense of. Our paper will help simplify it all.
Here are the key things you should know:
- A capacity crunch is likely to occur as significant numbers of members will continue to seek advice on transferring at retirement over the next five to ten years. There are currently 5.9 million non-pensioner members in private sector DB schemes. If just 2% of them want advice each year, this will mean around 120,000 members requiring advice annually for the next few years (that's around 600,000 members over the next five years). However, the number of advisers able to give that advice is likely to reduce, meaning some members are expected to face difficulties in finding an appropriate adviser.
- Over the last ten years, the level of transfer values have risen by around 50%, a fact that has been well publicised and has driven up member initiated demand for transfer values. Alongside large scale Code-compliant transfer exercises being run by scheme sponsors looking to de-risk their schemes and settle liabilities, the number of DB transfers has increased significantly over the last few years.
- TPR estimates that between April 2016 and 2019, there were approximately 400,000 transfers from DB schemes and that approximately £47 billion was transferred out between April 2017 and 2019. Most of these will have been transfers to DC arrangements. This is greater than the premiums paid by DB schemes to buy bulk annuities.
Please contact Simon Taylor if you would like to discuss any of the above topics in more detail
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