Employers brace for flood of ‘final salary’ Pension transfers
British businesses are reporting a surge in demand from current and former staff who want to swap their a�?final salarya�? pensions for cash. Half of the 182 employers surveyed by the Association of Consulting Actuaries, aA�trade body, said they had received transfer request from at least 5% of scheme members.
Growing numbers of savers are seeking to move their Pensionsa�� final salary schemes to a�?defined contributiona�? plans because of the extra flexibility afforded and superior tax treatment on death. It is thought more than A?50bn has been taken out of final salary schemes over the past two years, with the average transfer exceeding A?250,000. This suggests that the option is being used by better-off employees or past employees.
But record-low interest rates have also pushed up the a�?transfer valuesa�? offered by Pension schemes to those who give up their entitlements and take a cash transfer instead. Final salary type schemes payA�a guaranteed, inflation-linked income for life. To provide equivalent benefits via an annuity has become increasingly costly, a fact reflected in higher transfer values. In some cases, for example,A�people are being offered around A?500,000 to give up a Pension paying A?12,500 a year.
These schemes are all but extinct in the private sector because they are incredibly expense for sponsoring employers to support. They are required by law to meet their income promises no matter prevailing market conditions. Instead, the type of Pension generally offered now is the “defined contribution” scheme were the worker builds up a pot over the course of their career – rather than a promise of any income.
Difficulties in getting a Transfer
The majority (61%) of final salary members who want to transfer are struggling to find a Financial Adviser to help them do so, the ACAa��s research found. Under Government rules, savers must see an Independent Financial Adviser if transferring a Pension worth A?30,000 or more. This equates to a Pension expected to pay just A?1,000 a year.
Savers have a right to transfer as long as they can prove theya��ve taken advice, whether or not they have been recommend to go ahead with the move. Yet many Advisers are wary of advising on Pension transfers at all as they fear savers dona��t fully understand the risks involved and may make claims for compensation years into the future.
The ACA said the dearth of willing Advisers explained why only one in four requests actually resulted in a transfer. They addedA�that savers were being frustrated, and schemes were facing rising costs, because of a lack of standards for dealing with inquiries and transfers.
A�Do you, or someone you know, need an Adviser who is not a�?deada�? and ready to help?