An estimated £45bn was paid out of the FTSE350 defined benefit schemes following the introduction of Pension Freedom reforms in 2015.
Analysis from Barnett Waddingham found just over £200bn was paid out of these schemes between 2015 and 2020. It says this figure is £45bn higher than the five years prior to the introduction of these new rules.
The increased outflow since 2015 is the result of members transferring the capital value of their DB pension to an alternative pension arrangement, usually a defined contribution (DC) pension.
Barnett Waddingham’s analysis show there was a spike in transfer activity in 2017, with an estimated £14.7bn paid out of these schemes. There has been a slowdown in activity since, with an estimated £6.8bn paid out in 2020.
It says this slowdown is a result of increased regulation, a ban on contingent charging structures for DB transfer advice as well as a shrinking number of financial advisers willing or able to advise on DB transfers. Negative press coverage relating to specific transfer value cases and wider awareness of pension scams as well as hesitance around carrying out large, one-off transfer exercises post pandemic have also had an impact.
Barnett Waddingham added that its research showed that there had been particularly high outflows from the pension schemes of the UK big high street banks, with Barclays paying out £4.2bn from its scheme in 2017.
Barnett Waddingham partner Simon Taylor says: “This data shows the incredible impact that the ‘Freedom and Choice’ reforms have had on the decisions of those retiring over the last five years. There has clearly been a huge amount of demand from members of DB schemes to access their pension more flexibly and draw income in a way that best suits their needs.
“Whilst welcome, the increased regulation in this area has made it more challenging for individuals to access suitable financial advice at a reasonable cost. We expect to see a lower level of transfer activity over the coming years as a result of the increased regulation, but there will undoubtedly be an underlying level of demand from members to continue exploring this option.
“Companies and trustees should strongly consider putting in place a robust support framework for DB members to ensure that they are able to make the right decision at this important point of their financial journey.”
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