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Partial DB transfers could temper pension freedom risks

Current ‘all or nothing’ mentality means people face losing guaranteed income in retirement

Most financial advisers in the UK think that partial defined benefit (DB) transfers should be a legal right, with around 80% of IFAs believing that more pension schemes should be offering them, Royal London has found.

In a joint policy paper with consultants Lane Clark & Peacock (LCP), the mutual insurer argued that making partial DB transfers available would give retirees the “best of both worlds”.

This is because more flexible access to pension wealth could be more beneficial, especially for those who have been only contributing to a single scheme for a long time.

‘All or nothing’

“Pension freedoms give people new options to shape their retirement wealth in the way that is right for them,” said Steve Webb, director of policy at Royal London.

“But for too many people this is an all-or-nothing option, involving giving up all of their guaranteed pension income in retirement.

“We would like to see far more schemes offering partial transfers, where members can retain a secure pension but also enjoy greater flexibility.

“This genuinely could be the best of both worlds”.

The insurer said that, in many instances, people who transferred into a defined contribution (DC) scheme have lost their entire right in the DB scheme, which is why a partial transfer could be a viable solution.

Reducing risk

At the same time, LCP found that 22% of schemes now offer this type of transfer, compared to 15% in 2017.

Jonathan Camfield, partner at LCP, said: “But many more could make this option available to their members. Although there are technical and practical issues which schemes would need to address, large and small schemes have already demonstrated that these can be overcome.

“Greater access to partial transfers would benefit members and also schemes, by reducing risks in the DB transfer process.”


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