Falling defined benefit (DB) pension transfer values could be discouraging thousands of pension scheme members from reviewing their retirement plans, according to Hub Pension Consulting.

Hub stated that an advice “blind spot” was likely to be developing among many scheme members who assume that recent falls in cash equivalent transfer values (CETVs) meant they had missed the opportunity to review their pension and options.

The DB pension review company, which is part of Just Group, warned that this could leave members vulnerable to poorer outcomes in later life.

“The truth is that a notionally high transfer value was a factor – but rarely the deciding factor – when it came to advising people to transfer their DB benefits,” commented Hub Pension Consulting senior pension consultant, Seb Sherburn.

He noted that higher interest rates had ushered in an environment of lower transfer values, and the danger was that people seeing a lower number may think they had missed the boat.

“The result is that they stick with what they have rather than exploring their options with a professional adviser,” Sherburn continued. “This decision could result in clients achieving a worse outcome.

“This is compounded to some extent by the extra regulatory scrutiny of advice to review a DB pension, which has led to many advisers giving up their permissions.

“Even if a DB member has their own financial adviser, the complexity involved means that adviser may not be willing or qualified to look at the DB options in depth.”

Sherburn noted that there was a real risk of an advice blind spot being created, whereby the minority of people who could benefit from a DB transfer do not get the support they need to see if it is right for them.

According to Hub, industry estimates suggest that transfer values declined by around a third last year, while the number of advisers offering DB pension transfer advice had fallen from more than half to less than a quarter in the past five years.

“Transfer values are one factor, but we have also seen other changes such as annuity rates rising sharply and the government recently announcing the lifetime allowance is to be abolished,” Sherburn added.

“Our role is far more about DB advice than simply DB transfer advice because ultimately each DB member will have unique circumstances.

“DB pensions are brilliant in circumstances where reasonably healthy people need a good level of secure income which is inflation protected. But they do not work so well for people who are in poor health or have good reasons for wanting to retire early. And for people who could benefit from more flexibility to access cash tax-efficiently, want to pay off expensive debt, or who want to leave more to loved ones a DB pension may not be the best solution.

“At the moment, there is a real risk that falling CETVs are seen as sufficient reason for a DB member not to review their retirement planning – but it is not that black and white. The key is to focus on the customer and what they want to achieve rather than to be driven by the CETV alone.”

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