Thursday, 09 May 2019 08:53

70,000 DB scheme members quitting annually since Freedoms

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XPS Pensions Group website XPS Pensions Group website

A survey by pensions firm XPS has revealed that each year 70,000 Defined Benefit scheme members are using the Pension Freedoms to leave their schemes - with most shifting their money to a SIPP.

XPS Pensions Group says the figures suggest more education and support is required to create “better outcomes” for DB members who are being tempted by rising transfer values and a desire to ‘unlock’ their pension.

In its second annual survey on member outcomes under the Pension Freedoms the company said:

• XPS’ 2019 survey tracked 1,800 transfers where the average transfer value has risen over 15% in a year to around £275,000

• Approximately 1.5% of all eligible members or 70,000 each year are leaving DB schemes

• 99% of members are “disappointingly” moving to a self-invested personal pension (SIPP)

XPS has called for more help to ensure DB scheme members fully understand their choices and consider all the options before transferring.

Wayne Segers, principal, XPS Pensions Group said: “With so many leaving DB schemes, there is no time to wait on providing clear robust support to help members understand the consequences of their options. New FCA guidelines are driving better support from advisers but trustees and employers have a vital role to play in initial education.

“It is therefore encouraging to see that trustees and employers are beginning to take action to improve member outcomes.”

2019’s XPS report found among employers and trustees that:

• 40% have implemented or are considering implementing a communications strategy

• 30% are actively investigating partial transfer options

• 25% are looking at introducing a low-cost receiving vehicle for members

•10% now have an IFA in place at retirement with a further 25% considering implementing it

Wayne Segers added: “A one size fits all destination is unlikely to drive the best outcomes for all members. Some members may be paying for features they don’t need or use. Charges can have a devastating effect on member’s retirement incomes. Lower cost, simpler SIPPs and master trusts can help and members deserve better support to easily access these.”

XPS’ 2019 survey also highlighted the impact charges can have on member outcomes. Members that choose more expensive vehicles over lower cost alternatives could run out of money seven years earlier if 25% tax free cash is taken and they draw an annual income of £12,000.

More expensive vehicles could also mean £400,000 less inheritance to leave at the end of their expected lifetime (£340,000 in 2018 survey) and £5,000 less a year in annuity income at age 75 (£4,000 a year in 2018 survey).

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