Trustees should offer a partial defined benefit transfer as a standard option, according to a new report by LV=.

Balancing flexibility and security – Why partial transfers should be a standard option argues that a partial transfer a DB members would offer a mix of income security and flexibility. However, LV= believes there is a need for greater understanding of partial transfers among trustees, schemes and members.

Partial transfers essentially provide a ‘safety-first’ approach to retirement income planning as they allow members to secure money for the essentials first, before considering discretionary income, LV= explained. However, poor availability of partial transfers could mean members wholly transfer out of DB scheme unable to access, or unaware of, the partial transfer option and therefore give up valuable benefits unnecessarily.

Since the introduction of the pension freedoms in April 2015, there has been a significant increase in the number of DB members requesting a transfer, in part due to the freedoms but the historically high values also on offer.

However, most schemes only offer single transaction transfers, which are often not suitable for the majority of members. LV= believes partial transfers can offer a less risky solution as they provide a mix of flexibility and guaranteed income, yet less than 15 per cent of schemes currently offer partial transfers to their members.

Therefore, to ensure improved visibility and availability of partial transfers so DB members are able to make the best retirement decision for them, LV= recommends the government and industry do more to improve member, trustee and scheme understanding of partial transfers, explaining the risks and benefits.

The company also suggests trustees work with financial advisers to explore practical solutions for members and make partial transfers a standard option. The government and regulator should also provide guidance and support to schemes so that they can confidently offer this option to members.

Commenting on the report, LV= head of corporate solutions Mary Stewart said: “The freedom and choice reforms have radically changed the pensions market and the way in which consumers can access their pension pots. Great opportunities are now available for retirees but the freedoms have also increased the risk of someone running out of money, particularly for DB members who want to transfer out of their scheme.

“We strongly believe there is a role for partial transfers to allow DB scheme members flexibility over their retirement options, while maintaining the certainty and security of a regular income. We know many trustees may be wary of partial transfers, partly because of the complexity of the administration involved, however they can help reduce the risk for both member and trustee. We want the government and regulator to support the take up of partial transfers among schemes and help deliver better outcomes for consumers in retirement.”

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