Report calls for wider access to partial DB transfers

Royal London and LCP have published a new report calling for the introduction of wider access to partial DB transfers.

The study, called Partial transfers of DB benefits: Best of both worlds, concludes that partial transfers could be a solution to the ongoing controversy surrounding DB pension transfers.

It estimates that since the implementation of pension freedoms in 2015, some half a million people have given up their rights in a DB pension scheme in exchange for a lump sum transfer into a DC plan.

In the vast majority of cases, this has involved giving up entire rights in a DB scheme.

In order to retain some level of guaranteed income from a DB scheme, Royal London and LCP have suggested that more individuals take advantage of a partial transfer, which combines a smaller, but continued level, of certain income with a more modest transferred lump sum.

The report says that this would particularly suit individuals whose entire lifetime pension rights lie in a single DB scheme.

Research from Royal London has discovered strong support for more extensive use of partial DB transfers.

After questioning 350 financial advisers, the insurer found that around five in six financial advisers would like to see more schemes offering partial transfers, with two thirds of advisers thinking this should be a legal right.

Separate research from LCP has lead the consultancy to estimate that the proportion of DB schemes offering a partial transfer option has risen from around 15 per cent in 2017 to 22 per cent today.

LCP has also found that around two thirds of schemes offering partial transfers have assets under £500 million and that take-up of partial transfers has been low.

Royal London director of policy and a co-author of the report, Steve Webb, said that Pension freedoms had resulted in giving too many people 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,” he said. “This genuinely could be the best of both worlds”.

LCP partner, Jonathan Camfield, who also co-authored the report, said that although there are technical and practical issues which schemes need to address before offering partial transfers, he said that there was no reason that these could not be overcome.

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

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