And the consequences could be even dire for savers who are just one year away from retirement, where the transfer value is, on average, 75 percent of the “full value” of the pension given up.
These latest findings come from a survey of 400 define benefit (DB) schemes from Royal London and consultancy Lane Clark & Peacock, who use new calculations that have come into place by the Financial Conduct Authority (FCA).
The FCA last week released new rules aimed at improving the advice people receive when considering transferring their pension.
It will see pensions advisers recommending DB pension transfers subject to tighter regulations in an attempt to tackle growing fears of a mis-selling scandal.
Information must now be more transparent for savers, with advisers being told to detail how the transfer value offered by a company pension scheme compares with a transfer value comparator.
The research paper read: “Anecdotally, there has been a perception that the DB to DC transfer market may have peaked, partly because of negative press coverage around the British Steel case, and the wider coverage suggesting that some people who have transferred have experienced poor outcomes.”
The majority of advisors – some 300 of 400 respondents who took part in the research – said they do not expect their recommendations to be impacted by the new rules.
Less than 100 advisers say they expect to recommend fewer transfers.
Royal London director of policy Steve Webb said: “With around 200,000 people having transferred out of a company pension in the last couple of years, and thousands more doing so every week, it is vital that they have a clear understanding both of the advantages of transferring and of the valuable benefits they are giving up.
“If this new way of assessing transfer values results in better informed conversations with impartial financial advisers before decisions are made, this would be a good thing.”
LCP partner Johnathan Camfield said transferring is not always a bad idea, even if people transferring out of company pensions will likely be told they are giving up at least half the full value of their pension.
He says: “This does not necessarily mean that transferring is a bad idea, but it does show very clearly that those who transfer out are forgoing a great deal of certainty about their future retirement income and that this certainty is of considerable value.”
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