99% of exiting DB scheme members move to a SIPP

A survey has found that 99% of the 70,000 Defined Benefit scheme members who quit each year are transferring their money to a SIPP. XPS Pensions Group says the figures from its survey suggest more education and support is required to create “better outcomes” for DB members who seemed to be "disappointingly" failing to consider all the transfer options.The company found that 1.5% of all eligible scheme members were now using the Pension Freedoms to transfer each year.Wayne Segers, principal, XPS Pensions Group, said: “A one size fits all destination is unlikely to drive the best outcomes for all members. "Some members may be paying for features they don’t need or use and charges can have a devastating effect on member’s retirement incomes. Lower cost, simpler SIPPs and master trusts can help and members deserve better support to easily access these.”In its second annual survey on member outcomes under the Pension Freedoms the company said:• XPS tracked 1,800 transfers and found the average transfer value has risen over 15% in a year to around £275,000• Approximately 1.5% of all eligible members or 70,000 each year are leaving DB schemes• 99% of members are “disappointingly” moving to a self-invested personal pension (SIPP) XPS has called for more help to ensure DB scheme members fully understand their choices and consider all the options before transferring.Mr Segers added: “With so many leaving DB schemes, there is no time to wait on providing clear robust support to help members understand the consequences of their options. New FCA guidelines are driving better support from advisers but trustees and employers have a vital role to play in initial education. “It is therefore encouraging to see that trustees and employers are beginning to take action to improve member outcomes.” 2019’s XPS report found among employers and trustees that:• 40% have implemented or are considering implementing a communications strategy• 30% are actively investigating partial transfer options• 25% are looking at introducing a low-cost receiving vehicle for members•10% now have an IFA in place at retirement with a further 25% considering implementing itXPS’ 2019 survey also highlighted the impact charges can have on member outcomes. Members that choose more expensive vehicles over lower cost alternatives could run out of money seven years earlier if 25% tax free cash is taken and they draw an annual income of £12,000.More expensive vehicles could also mean £400,000 less inheritance to leave at the end of their expected lifetime (£340,000 in 2018 survey) and £5,000 less a year in annuity income at age 75 (£4,000 a year in 2018 survey).

99% of exiting DB scheme members move to a SIPP

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