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Pension transfers would have minimal impact

If people were permitted to transfer from funded private sector defined benefit (DB) schemes to defined contribution (DC) pensions as they near retirement this would not lead to negative economic consequences, Standard Life has opined.

A complete ban on DB to DC transfers has been proposed, due to concerns about what the consequences might be following on from Chancellor George Osborne’s pension reforms announced in the Budget earlier this year.

Standard Life has expressed the view that such a transfer would not be best for the majority of pension savers, but added that the increased flexibility announced in the Budget is unlikely to be available to DB schemes.

If widespread DB to DC transfers occurred some believe this would damage financial markets due to a reduction in demand for government gilts and corporate debt, but Standard Life has indicated it believes less than 0.2% of pension assets are likely to be impacted.

The firm has also expressed the view that the majority of transfers would require assets such as gilts and/or corporate debt, meaning that demand would not reduce in scale, merely move from long-term to short-term.

Head of Customer Income Solutions Alastair Black said that whilst the firm understood the Government’s concerns about the potential impact of DB to DC transfers it did not anticipate a significant shift in demand away from bonds.

Earlier this month a survey by Mercer found that 65% of private sector pension scheme employers and trustees believe that both DC and DB members should be treated the same when it comes to flexibility when accessing pension savings.

Mercer Partner Matthew Demwell said that DB to DC transfers should continue to be permitted, describing them as a valuable tool to help trustees and sponsors manage DB risk by reducing liabilities and financial uncertainty that comes with rising life expectancy.

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