Trustees need to understand impact on assets following DB transfers

Written by Natalie Tuck

Trustees of defined benefit pension schemes are being urged to make sure they understand the impact of members transferring out has on a scheme’s assets.

It follows a report in the Financial Times that an unnamed financial services company has reduced its liabilities by a tenth, more than £100m, in just six months due to members transferring out of the scheme.

Commenting, Hymans Robertson head of trustee DB Calum Cooper said: “We need to be clear that 10 per cent transferring out of a DB scheme doesn’t just equate to a 10 per cent saving or deficit reduction. While the liabilities for this schemes were reduced by 10 per cent, the question is how much did the assets fall?

“Schemes need to understand the impact this has on those remaining in the scheme, particularly on the chances of success of being able to pay the benefits to the remaining members as they fall due. The experience of this scheme is broadly consistent with what we see in our own client base when they undertake a well-communicated bulk transfer exercise with fair terms.”

There has been a significant increase in the number of DB members transferring out of schemes in the past 12 months as the value of the transfers has increased. Cooper noted that there has been more DB schemes proactively communicating with members about the retirement choices available to them.

“While this is the right thing to do, more needs to be done. Too many schemes are taking a passive approach both to communicating and supporting members with their decisions which can put both individuals and the schemes at risk. In our recent poll of trustees and employers, 88 per cent agreed that schemes could do more to support members.

“Schemes have a responsibility to ensure choices are communicated properly and can be accessed in a safe and supported environment. If not, we risk seeing a repeat of what is happening with the impaired life annuity market whereby the regulator imposed fines on insurers for not providing ‘sufficient information’ for retirees to make an informed choice. Although it is still early days, the parallels are clear."

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