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Large numbers of pension savers transferring out of ‘gold plated’ deals

By Vicky Shaw, Press Association Personal Finance Correspondent

Large numbers of people have been transferring out of traditional “gold-plated” pensions over the past year, figures obtained by a mutual insurer suggest.

A freedom of information (FOI) request by Royal London found an estimated 100,000 transfers were made out of defined benefit (DB) pensions between the start of April 2017 and the end of March 2018.

The average pot being transferred was just under £200,000, the figures suggest.

The figures were provided to Royal London by the Pensions Regulator.

Defined benefit (DB) schemes promise people a certain level of income when they retire, such as final salary schemes.

But they have become more thin on the ground nowadays as firms have found them expensive to run as people live for longer.

Some people may have transferred to defined contribution (DC) pension schemes. This is the type of scheme covered by the pension freedoms, which give people greater flexibility over how they use their pension pot.

While DC schemes have this new flexibility, people saving in this type of scheme bear the risk of how big a retirement pot they eventually end up with – unlike DB schemes.

Meanwhile, some people transferring from DB schemes in the Pensions Regulator’s figures may have switched their pot from one DB scheme to another.

Sir Steve Webb is, a former pensions minister (Danny Lawson/PA)

Sir Steve Webb, a former pensions minister who is now director of policy at Royal London, said: “Large numbers of people are still transferring out of traditional salary-related pensions, but whether this is a good idea or not depends crucially on your individual circumstances.

“For most people, a guaranteed salary-related pension that lasts as long as you do, and is unaffected by the ups and downs of markets will be the best answer.

“But there will be some who want extra flexibility or are focused on passing on some of their pension wealth for whom a transfer might be the right answer.

“It is vital to take, and listen to, impartial financial advice before making a big decision of this sort.”

In the light of the figures, Royal London has updated its guidance for consumers on pension transfers.

  1. Flexibility - instead of taking a set pension on a set date, you have much more choice how and when you take your pension
  2. Inheritance - generous tax rules mean that if you leave behind money in a DC pension pot it can be passed on with a favourable tax treatment, especially if you die before the age of 75
  3. Health - those who live the longest get the most out of a DB pension, but those who expect to have a shorter life expectancy might do better to transfer
  1. Certainty - with a DB pension, you get a regular payment that lasts as long as you do
  2. Inflation - a DB pension has a measure of built-in protection against inflation, but with a DC pot you have to manage this risk yourself
  3. Investment risk - with a DC pension you have to handle the ups and downs of the stock market and other investments; with a DB scheme you do not need to worry - it is the scheme's problem

– The full guide can be downloaded from royallondon.com/goodwithyourmoney.