The average defined benefit (DB) pension transfer value for the 2019-20 financial year in the UK was £290,000 ($362,274, €320,599), XPS Pensions has found.
This shows a 5% rise compared to transfers made during 2018-19.
In its ‘Member Outcomes Under Freedom and Choice’ report, the pension consultancy firm revealed that 98% of people who opted to move their money out of their DB scheme invested in a Sipp.
XPS said this was a “slight reduction” compared to those who transferred into a self-invested personal pension in the previous financial year; but there has been a shift to less expensive Sipps, which has improved member outcomes.
The report polled 2,200 XPS members who chose to transfer from the schemes the firm administers.
Pre-covid figures
Helen Ross, head of member options at XPS Pensions Group, said: “It is encouraging to see some signs that outcomes are improving in light of the actions many pension schemes are taking to support their members.
“Perhaps at odds with what may be expected, we also found that the typical profile of a member leaving their DB pension scheme is healthy, financially secure and familiar with online technology.
“But most of this was before the impact of covid-19. Financial pressures could see pensions transfers become more tempting to more members and particularly those that are less financially secure.
“The support and protection pension schemes offer will become critical. Understanding their membership in more detail, will enable schemes to tailor their support, particularly around communications and scam protection to best suit their specific member profiles.”
Help the vulnerable
Mark Barlow, partner at XPS Pensions Group, said that the next few months are going to be challenging for DB scheme members as they deal with the financial impact of the pandemic.
That is why trustees must assess scheme members’ levels of vulnerability and support them accordingly.
He continued: “A transfer could look very attractive in the current economic environment, but there will be many risks associated with this option. Some members will see their jobs come under pressure and the value of other assets such as their home fall relative to the value of their pension.
“The temptation to access pension savings may increase along with the risk of scams. It is very important that trustees and sponsors assess how vulnerable their members may now be and use this to tailor support.
“This can include scam protection, the channels they use to communicate with members and education on costs and options. For some a low–cost employer destination vehicle may allow people to access flexibility they may soon need without incurring substantial pension charges.”
