The Daily Telegraph - Saturday - Money
Partial transfers mean you can sidestep costly financial advice
transferred. That same ratio would be applied to a partial transfer, so you could turn £333 of annual income into £10,000.
As well as allowing you to keep some guaranteed (and inflation-linked) income, this option would have the advantage of avoiding the requirement to seek financial advice on transfers worth £30,000 or more. The Financial Conduct Authority, the City watchdog, confirmed that this was a legitimate way to sidestep the rule.
It can be difficult to find advisers willing to do this kind of work. Fees are also high – it can easily cost £2,000 for a £100,000 transfer. Some firms will charge simply to produce a report, whether or not a transfer goes ahead. By transferring small amounts the hassle and costs of finding an adviser would disappear.
Tom Selby of AJ Bell, the investment shop, said partial transfers would remove the “all or nothing cliff edge” that savers currently face and would help advisers feel more confident about recommending a transfer “when they know the entire guarantee is not being ditched”.
One reader, Richard Austin (pictured), said advisers had refused to speak to him because they didn’t think they could recommend a move.
The few company schemes that do offer partial transfers tend not to advertise the fact. Transfers can be complicated and costly for them to administer. They may also restrict how many times partial transfers can be made to stop savers treating their pensions like a cash machine.
For that reason it tends to be the largest schemes that offer partial transfers, often only to members with larger entitlements. In many instances the pension scheme trustees will decide whether to allow partial transfers on a case-by-case basis.
However, there can be advantages for the pension schemes themselves, many of which are running large funding deficits. When a transfer, full or partial, is made out of a scheme, the cost of servicing the remaining liabilities falls.
A spokesman for the Department for Work and Pensions said giving savers a legal right to a partial transfer would require a change in primary legislation. This would require finding sufficient time in the parliamentary calendar, already squeezed by the demands of Brexit. He said the Government believed that the current system, which gives trustees the choice of offering partial transfers, represented a “good balance”.
The Royal London/ LCP report also highlighted other areas where pension savers were not being given valuable information.
For instance, nearly all final salary schemes have an option for people no longer saving into the scheme, known as “deferred members”, to take early retirement. While this entails a smaller pension, it could help bridge any income shortfall, such as the years before the state pension is due.
But most schemes do not tell savers about this option. In fact, most don’t make contact with members at all until they approach normal retirement age, usually 60 or 65.
Since April 2015 the pension freedoms have allowed anyone over the age of 55 to take all or some of their pension as cash.
However, these benefits, introduced after years of pressure from campaigners, apply only to defined contribution pensions. These are now the dominant form of pension savings, but millions of people hold most of their savings in final salary schemes.
These schemes do not offer the pension freedoms and it is this that has driven the boom in transfers. At the same time, low interest rates have also pushed transfer offers to very generous levels.