Additional £45bn paid from FTSE 350 DB schemes since 2015 pension freedoms

FTSE 350 defined benefit (DB) pension schemes have made an estimated £45bn worth of additional benefit payments since the introduction of pension freedoms in 2015, according to analysis from Barnett Waddingham (BW).

The firm found that, in total, just over £200bn was paid out of the FTSE 350 DB schemes to members from 2015 to 2020, noting that this figure is around £45bn higher due to the introduction of the pension flexibilities as part of the 'Freedom and Choice' reforms.

The analysis also showed that the UK’s four largest banks have seen an "especially high outflow" of transfer payments, with Barclays leading the way with £4.2bn paid out in 2017.

The findings suggested, however, that there has been a slowdown in transfer activity in recent years, with an estimated £6.8bn paid out of FTSE 350 DB schemes in 2020, compared to the £14.4bn of transfer values paid in 2017 when there was a spike in transfer activity.

The trend around slowing activity was attributed to a number of factors, including Covid-19 causing companies and trustees to be more cautious in carrying out large, one-off transfer exercises, negative press coverage relating to specific transfers and greater pension scam awareness.

It also attributed this trend to the increasing regulation relating to the DB transfer advice process and the ban on contingent charging structures, which have resulted in a shrinking in the number of financial advisers willing or able to advise on DB transfers.

BW partner, Simon Taylor, commented: “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 do 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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