Some of the UK’s largest pension schemes are bracing for a significant jump in requests from savers to cash in their retirement benefits to help them through the Covid-19 crisis.
Across the UK, about 5.8m people in the private sector hold entitlements to defined benefit pensions which are considered “gold standard” as they deliver a secure, inflation-proofed retirement income for life, based on salary and length of service.
Since these employer-backed pensions are more secure than alternative retirement plans, the Pensions Regulator says most unretired members are better off not exercising their right to trade their future benefit for a lump sum now, and transferring it to a riskier arrangement where retirement cash can be taken from age 55.
Mercer, which administers about 4,500 “final salary-style” pension schemes with more than 2m members in total, said it believed the end of the government’s job-support scheme next month would spark a “huge increase” in requests for transfer quotations.
“We are bracing ourselves for a significant increase in requests for retirement and transfer benefits in the fourth quarter and 2021,” said Lorraine Harper, principal at Mercer.
“We believe that as people come out of furlough schemes and potentially lose their jobs, this will spark a huge increase in requests for quotations.”
Hymans Robertson, another large scheme administrator, said it expected the number of members exploring transfer values to increase over coming months as job losses took hold and members took stock of their financial and personal situation.
“It will be vital that schemes have the right communication and support in place to help members make well-informed choices,” said Ryan Markham, head of member options with Hymans Robertson.
Barnett Waddingham, which administers 370 schemes with about 400,000 members, said: “Inevitably, we will see an increase in inquiries in either transfer or early retirement factors, once furlough ends.”
Pension schemes in sectors hardest hit by the pandemic have also reported a steep rise in members exploring quitting their gold-plated schemes.
The British Airways retirement plan said requests for transfer quotes had doubled between April and September, compared with the same period a year ago, as lockdown disruption hit the economy.
“In times of crisis, people do want to explore their options,” said Fraser Smart, chief executive of British Airways Pensions, which has about 50,000 members who qualify for a transfer.
“We are well prepared for an increase in transfer quote requests and we are building up resources to make sure we can process those quotations in the relevant timeframes.”
However, Mr Smart said only 10 per cent of the transfer quotes issued during the pandemic were accepted by members and paid out. He said members could turn down a quote for several reasons, including difficulties finding a financial adviser to help them decide whether the offer was suitable.
Once a transfer quote has been issued, it is typically valid for three months.
In June, regulators, including the Pension Regulator, the Financial Conduct Authority and the government-backed Money and Pensions Service, took joint action to caution savers against tapping their defined benefit pensions if they were facing Covid-19 hardship.
A letter for members exploring cashing in their pensions, prepared by the bodies, said transferring out of a DB pension scheme was “unlikely to be in your best long-term interests” and urged members to “not do anything in haste”.