Defined benefit (DB) scheme members who transfer out 10 years from retirement will receive an average of 57% of the full value of the pension they are giving up, according to a joint paper on the new transfer rules from actuaries Lane, Clark & Peacock (LCP) and life insurer Royal London.
LCP has calculated the figure using the new Financial Conduct Authority (FCA) transfer value comparator methodology, based on transferring the lump sum into risk-free assets up to retirement, which is then used to buy an equivalent guaranteed pension in the form of an annuity.
The research, conducted across 200 DB schemes, found some providers offering transfer values from as little as 40% of the full value to more than 80% of the full value.
For members within a year of retirement, the transfer value on offer will typically be higher, with an average transfer value being around 73% of the full value of the pension given up.
Generosity factor
The paper suggested that greater clarity about the relative generosity of transfer values offered by different company pension schemes could cause trustees of those schemes to review their policy on transfer values.
It added that schemes offering the most generous transfer values relative to the new FCA benchmark might ask themselves whether they needed to be as generous to those leaving the scheme, while those with the least generous transfer values might face pressure from members to increase the amount on offer.
In addition, where a client has rights under more than one DB scheme, the relative generosity of the transfer value on offer from each scheme could be a factor used by advisers in deciding which transfer to prioritise.
LCP partner Jonathan Camfield said: “Our research shows that people 10 years ahead of retirement who are considering transferring out of a company pension will typically be told that they are giving up around half of the full value of their pension.
“This does not necessarily mean that transferring is a bad idea, but it does show very clearly that those who transfer out are forgoing a great deal of certainty about their future retirement income and that this certainty is of considerable value.”
