There is a link between the relative generosity of transfer values and the volume of transfers out in Transfer values offered by Defined Benefit (DB) pension schemes, according to LCP.
The new findings from LCP research published in July 2022 could be relevant to schemes who are considering a range of ‘member options’ designed to benefit members whilst improving the funding position of the scheme as part of its long-term funding strategy.
The new report finds that ‘- there are a number of schemes that provide transfer values more than double other schemes for members who are not yet at retirement’.
It finds that for members ten years out from retirement, average TVCs have improved by around 11 per cent since 2018; in 2018 the median TVC was 57 per cent but now stands at 63 per cent. This reflects a mix of de-risking of scheme investments and new assumptions about inflation following reform to the RPI.
TVCs for retirees fluctuate less because the underlying investment mix hasn’t changed as much since 2018 according to LCP. Based on schemes administered by LCP, the schemes with “top quartile” TVCs saw a 24 per cent take-up of transfer value quotations compared with just 14 per cent in the “bottom quartile” of schemes ranked by TVC generosity.
LCP partner Clive Harrison says: “In recent years many DB pension schemes have been de-risking their investment strategy and this has fed through into an upward drift in the generosity of transfer values offered to members. But underlying investments still vary considerably and this is reflected in a huge variation in the amount which different schemes may offer for the same pension benefit.
“We also find that schemes which offer more generous terms for transfers may see a materially higher level of transfer activity. In many cases more generous transfers will still improve overall scheme funding and it is a factor which trustees will wish to consider when reviewing the transfer values which they offer”.
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