XPS survey shows 70,000 DB members exercise pensions freedoms each year - more education and support is required to create better outcomes

XPS Pensions Group (XPS), today reveals results from its second annual survey on member outcomes under freedom and choice. Building on last year’s survey, where 6,000 transfers were followed with an average transfer value of £235.000, XPS’ 2019 survey tracked a further 1,800 transfers where the average transfer value has risen over 15% to c£275,000. With so many members leaving schemes (approximately 1.5% of eligible members or 70,000 each year) there is still disappointingly little variety of destination for transfers, as the survey reveals 99% of members are moving to a self-invested personal pension (SIPP).

Wayne Segers, Principal, XPS Pensions Group said: “With so many leaving DB schemes, there is no time to wait on providing clear robust support to help members understand the consequences of their options. New FCA guidelines are driving better support from advisers but trustees and employers have a vital role to play in initial education. It is therefore encouraging to see that trustees and employers are beginning to take action to improve member outcomes.”

The XPS survey looked at what employers and trustees are doing to help members with their choices at this critical point in their financial lifetime and the results are encouraging. In 2018’s survey, XPS identified four key actions employers and trustees could take to achieve better outcomes and we are starting to see our clients take action. 2019’s report showed:

• 40% have implemented or are considering implementing a communications strategy
• 30% are actively investigating partial transfer options
• 25% are looking at introducing a low-cost receiving vehicle for members
• 10% now have an IFA in place at retirement with a further 25% considering implementing it

Wayne Segers added: “A one size fits all destination is unlikely to drive the best outcomes for all members. Some members may be paying for features they don’t need or use. Charges can have a devastating effect on member’s retirement incomes. Lower cost, simpler SIPPs and master trusts can help and members deserve better support to easily access these.”

XPS’ 2019 survey highlights the impact charges can have on member outcomes. Members that choose more expensive vehicles over lower cost alternatives could;

  • Run out of money seven years earlier if 25% tax free cash is taken and they draw an annual income of £12,000 the same as in the 2018 survey
  • Receive £3,200 less each year of retirement income over their expected lifetime - £2,600 each year in 2018 survey
  • Leave £400,000 less of inheritance at the end of their expected lifetime – £340,000 in 2018 survey
  • Receive £5,000 less a year in annuity income at age 75 - £4,000 a year in 2018 survey

Read full survey