Pension transfer boom to continue in 2018 predicts Willis

The rapid growth in the number of pension transfers will continue this year, according to the respected global actuary and consultancy firm Willis Towers Watson. The dramatic increase in defined benefit pension transfers seen in 2017 will continue this year as more baby-boomers cash in their “gold-plated” pension schemes, says the firm.Rising interest rates will fail to dampen interest in pension transfers - which are heading towards 100,000 a year - but overall the pensions sector in 2018 will be dominated by tighter regulatory control and the shadow of legislative change to the pension tax regime, Willis Towers Watson warns.The firm says that despite November’s quarter percentage point increase in the Bank of England’s base interest rate, defined benefit pension scheme members are likely to continue to transfer their pension to a defined contribution pot in order to take advantage of pension freedoms.However, it cautions that a number of factors may begin to reduce the high transfer values being offered to some DB scheme members. In addition, pension schemes will need to pay particular attention to the impact that these cash outflows have on their investment portfolio to avoid an imbalance that would impact their risk or growth profile, says the firm.Peter Rowles, head of Willis Towers Watson’s UK retirement practice said: “We have seen a huge increase in pension transfers over the past few years, since pension freedoms came into force.“Members are looking at the transfer value quote they are able to obtain from their scheme, along with the opportunity often to take a bigger tax free lump sum from a defined contribution pot, and a large number are choosing to transfer out of their DB scheme.“It could be argued that with interest rates rising and gilt yields improving, schemes will start to see a reduction in their liability figures which could correspondingly lead to lower transfer values being offered to members, reducing the temptation for individuals to transfer out of a secure DB pension.“But the indications are that interest rates, although rising, will do so slowly and I think this is unlikely to have an immediate impact on transfers in 2018 – we are going to continue seeing significant numbers of employees exiting their defined benefit pensions this year.”New regulation will also play a significant role for pensions in 2018. In particular the tighter legislative control of the master trust market being brought in by the Department for Work and Pensions will lead to large scale consolidation of providers, says Willis.Mr Rowles said: “We anticipate that the introduction of new regulations will lead to a consolidation in the number of operating master trust providers from the current level of around 70, to approximately 20 providers within a year. This will create a competitive industry of credible providers which will be better placed to serve the interests of both employers and employees.”Another area to watch for Financial Planners is the government White Paper on defined benefit pensions due in 2018.Willis Towers Watson is a global advisory, broking and solutions company with 40,000 employees and coverage of more than 140 countries.

Pension transfer boom to continue in 2018 predicts Willis

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