We’ve written recently on the PWS blog about the current high transfer values available to participants in employer pension schemes who opt to transfer their funds out of their scheme and into a personal pension.
As these high values are unlikely to be available for too long, we’ve pointed out that this is the time to act if you have a pension with a previous or current employer and would prefer the greater flexibility that a personal pension offers for the future use of your funds.
Now, a new survey has shown just how widespread the take-up of this opportunity has been amongst investors.
The UK’s largest independent provider of actuarial, administration and consultancy services, Barnet Waddingham, reports that defined benefits schemes with assets in excess of £10m have seen an 80 per cent median year on year increase in cash being transferred out.
What’s created the clamour to transfer into personal pensions?
As we pointed out in that earlier post, gilt yields are currently extremely low. This boosts the cost of having to produce equivalent retirement income via a private pension, which means that transfer values are pushed higher.
However, as interest rates start to increase, gilt yields will rise with them, and this will mean that transfer values will begin to fall.
So the rush highlighted in the report to transfer funds into private arrangements reflects the volume of financial journalists and pension advisors who are advising investors to consider making their move now to take advantage of the situation.
“There’s been a huge amount of interest amongst our clients, much of it initiated by the high transfer values”, says our Senior Private Client Adviser, Paul Green. “But in addition to this, many investors who may have been considering transferring out anyway because they are single and have no dependents, or were in poor health, have taken the high transfer values as the catalyst to take action.”
Why PWS is so interested in this research
As you’ll know if you are already our client, PWS is a broad financial planning and wealth management firm. We offer investment planning and guidance across a wide range of requirements.
However, a large part of the work we do with our clients is as independent pension advisors, which means we have huge experience in managing pension transfers, and so can offer very thorough, detailed advice.
And, while we have been strong advocates of clients considering transferring pension investments out of defined benefit employer schemes and into personal pensions, our priority is always to prevent clients making mistakes or taking risks they can avoid.
Transfer values not the only woe for defined benefit pensions
A number of factors other than transfer values are also contributing to the flow of investors opting to move their funds to private pensions.
Barnet Waddingham’s survey found that 97 per cent of final salary schemes no longer accept new members and are closed to further accrual, while 60 per cent do still accept further accrual but are closed to new members. This leaves few schemes open to new members.
57 per cent of defined benefit schemes also had a deficit on their company accounting basis, while the average three year investment return hovered around an unassuming 7.6 per cent a year.
The attraction of personal pensions
The attractive transfer rates make it appealing to move pension investments now into a private pension. Yet private pensions, and in particular SIPPs (Self Invested Personal Pensions), have advantages of their own to commend them.
Since the rules were changed in 2015 private pensions, unlike fixed benefit pensions, have offered almost total freedom over how you use the funds in your pot at retirement. Combined with the flexibility and versatility of a SIPP in enabling a wide range of assets to be held, a transfer can often look compelling even without the availability of those high transfer values.
Talk to us now about transferring your pension
PWS has helped hundreds of clients to transfer their pensions from employer fixed benefit schemes into SIPPs and other personal pensions.
“Because of the current market forces, there really isn’t a better time to at least obtain a transfer value and then consider your options,” concludes Paul Green. “Don’t put it off. Give us a call.”
Have a chat with your Advisor, if you’re already our client.
And if you’re not currently a PWS client, we’d still be pleased to help. Just contact us.