99% of DB transfers go into SIPPs

A new survey has revealed that 99% of DB pension transfers clients move their money into SIPPs. Research by XPS Pensions Group also found that average ‘ongoing costs’ for transfers increased 10% over the past year, from 1.7% pa the previous year to 1.9% in 2021. The rise in costs was mainly due to record DB pension transfer values pushing up average costs for transferees. XPS said there was evidence of members choosing more sophisticated options, particularly SIPPs of varying degrees of complexity. The survey revealed that 99% of members transferred to a Self-Invested Personal Pension (SIPP). The transfers into SIPPs resulted in fees ranging from 0.7% pa to over 3% pa (including ongoing financial advice). XPS has warned, however, that the rise in costs means transferring members risk running out of money 10 years early earlier than expected unless financial advice and lower cost options are made available by their scheme or employer. The difference between charges for the most expensive and cheapest receiving vehicles resulted in pensioners paying £8,500 extra in fees each year for the highest cost transfers. The research is revealed in XPS Pensions Group’s fourth annual Member Outcomes survey. Members transferring in the year to 31 March 2021 faced average total fees of 1.9% pa, up 10% increase on the previous year and the highest level since XPS’s survey began four years ago. These fees include charges related to the financial products that members transfer into as well as for ongoing financial advice. The increase in costs was due mainly to transfer values rising considerably, said XPS. Fewer members transferred over the year to 31 March 2021, down 23% on the previous year. However, the average transfer value increased by 29% to £375,000. This rise was driven by the members with the largest values choosing to transfer their pension. XPS says that some vehicles that can be lower cost for transferees, such as workplace pension schemes or master trusts, are not “routinely considered” by members. XPS says that if schemes combine access to financial advice and lower cost options, this could help the average member’s funds last 10 years longer in retirement. The gap between transfer values paid to male and female members reduced from 50% to 21% in the year to March 2021, with the average transfer value for men at £394,000 and women at £326,000. Mark Barlow, head of member options, said: “The slowdown in transfer activity over the last 12 months is unsurprising since most of the year was spent in lockdown. Interestingly, it’s been those with the largest values who have continued to transfer. This, together with the reduction in choice for members transferring, may explain why average charges have increased by 10% since last year. “We’ve been encouraged to see trustees and employers step up support, with 50% of members of schemes we work with now having access to enhanced support, up from 31% last year.”

99% of DB transfers go into SIPPs

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