Research shows many members of defined benefit schemes transferred out after taking up option to speak to a financial adviser
Nearly one in five members of defined benefit schemes (DB) chose to transfer out of their scheme, new research has found. They did so to access flexible retirement options available through a defined contribution (DC) pot after receiving free financial advice.
Willis Towers Watson looked at 15,700 members of DB schemes who have been offered independent financial advice at the expense of their pension scheme’s sponsoring employer since April 2015 – and found that 50 per cent took up the offer to speak to a financial adviser. Of those, over a third chose to transfer out of their DB scheme.
“Members of DB don’t always realise that ‘pension freedom’ does not automatically extend to them, still less that they would usually have to take financial advice before being allowed to take advantage of it,” says Stewart Patterson, head of liability management at Willis Towers Watson. “The cost of this advice can put people off examining their options, so it will make a big difference if the employer pays for this.”
Scottish Widows retirement expert Lynn Graves agrees on the importance of getting advice before transferring out of a DB scheme and explains that the recent Financial Advice Market Review may help to increase the availability of financial advice to employees:
“The current system allows for £150 income tax and NI relief for financial advice arranged by employers but, following this review, the government has announced it will increase to £500. Employees will also be able to access a further £500 from their pension pots, tax-free, to pay for advice.
“The exact details of these changes are being worked on, but the review also acknowledged that complexity in the way the current relief works is contributing to its under-use. When this is resolved, we expect a lot more employees to benefit from financial advice through the workplace.”