Enhanced transfer values could cut DB schemes' liabilities by £100bn

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  • Enhanced transfer values could cut DB schemes' liabilities by £100bn

UK - The UK's private sector defined benefit (DB) schemes could see 10% - or an estimated £100bn (€113bn) - cut from scheme liabilities if the trend toward enhanced transfer values (ETVs) continues over the next decade, KPMG has predicted.

Speaking as it released its first piece of research on the topic - which found one in four deferred DB members opted to transfer their pension savings out of their former scheme - it said that as many as 750,000 members could take advantage of the regulation over the next 10 years.

Mike Smedley, pensions partner at KPMG, said ETVs had become a key element of de-risking strategies, with the company expecting around half of all DB schemes to consider ETV exercises - where employers offer scheme members the possibility to access free financial advice on the issue.

Smedley said: "ETVs have become a key element of many companies' pensions de-risking strategy, and our data indicates their prevalence is going to increase."

The consultancy's research also showed that member concerns about an employer's insolvency played a part in the frequency of ETVs, as did the flexibility ETVs provided them by transferring to defined contribution schemes - rating significantly higher than withdrawal motivated by the need for cash.

"Our data indicates the attraction of cash today, as opposed to a steady retirement income, does influence members' decisions, although it is difficult to be conclusive," Smedley said.

"However, the use of cash payments direct to members is changing - a number of recent exercises have had no cash option, and others have had strict limits on the maximum amount of cash that could be taken."

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