Pension transfer volumes will continue to grow
Origo Managing Director Paul Pettitt comments on the growth in pensions transfers volumes seen through the Fintech company’s Options Transfers service*.
In 2016, Origo transferred £25bn in pensions money via its Options Transfers service*, bringing the total to over £100bn since the service was launched in 2008.
The dramatic rise in volumes – £17bn at Dec 2014, £21bn at Dec 15 and £25bn at Dec 16 – which, in large part, may be attributed to the announcement of the pensions freedom legislation in March 2014 and its introduction in April 2015, is unlikely to slow as we head further into 2017.
This is highlighting the need for systems and processes to be automated, enabling the greater volumes to be processed efficiently and cost effectively, and with an audit trail to provide measurable MI on service levels.
There are three key drivers that are likely to further affect the market.
1.First is the new rules from the Regulator ensuring that annuity products that are offered by product providers internally to pensions holders are now made available on the open market, as part of the Open Market Option process. This may see more movement in the market as people look to obtain better terms.
2.Second is the three-year anniversary of the first companies to go through auto-enrolment. The first phase of the largest employers that have reached the three-year mark have already been looking around at what is now available in the market and whether a move would be more beneficial for their employees. As we head towards the three-year anniversary of the medium-sized employers, which constitutes a far larger group, we will see companies review their arrangements seeking new and more cost effective solutions.
3.Finally, in the DB to DC transfer market, there is discussion around allowing members of occupational schemes to transfer part of their accrued DB entitlement into the DC world.
This could give pension holders the best of both worlds. If a pension holder transfers the whole of their DB pension into a DC product, then they have the issue of how to generate an income for life – buy an annuity, drawdown, or hybrid product? With a partial transfer, sufficient entitlement could be retained in the scheme pension to provide a suitable income for life, while the rest of the pension could be moved to DC arrangement, to take advantage of more flexible products and other benefits of the pensions freedoms, such as the new death benefits allowing pensions money to be passed down the generations.
Should partial transfers be sanctioned, it would provide the scope for considerably more transfers to take place.
* The Options Transfers service has over 90 brands using the service, enabling cash and in-specie transfers for pensions and other investment products.