Since the introduction of pension freedoms in 2014 the FTSE 350 buyout deficit - the amount required to transfer the pension liability to an insurer - fell by around £2.5bn.

The steadily increasing focus on transfers from DB schemes to DC arrangements has led around 10% of FTSE 350 schemes to undertake transfer exercises, according to the latest research from Barnett Waddingham.

Since 2015 benefits payments have been higher than expected and there has been a slight drop in pensions payments from £42bn in 2017 to £38.5bn in 2018, although this still represented a “significant” increase from the £31.2bn paid in 2016, Barnett Waddingham says.

The firm says 2017 was “something of an outlier”, as Barclays paid out £4.2bn in transfer values (10% of the total benefit payments paid out of the FTSE350 companies’ DB schemes that year).

Barnett Waddingham estimates that 73% of the increase since 2014 is due to transfers.

Some of these will have happened ad hoc as people chose to transfer from DB to DC without any company support, but others will be a result of firms undertaking pension transfer exercises.

These exercises benefit members who are keen for more flexibility in retirement, while sponsors see a reduction in risk and an improvement in the scheme’s funding position, the firm says.
 
Barnett Waddingham says the number of schemes able to buyout within the next five years could increase by a third if further transfer exercises are carried out.

Simon Taylor, partner at Barnett Waddingham, said: “With increasingly volatile markets, the risks facing DB pension schemes and their sponsors are greater than ever.

“It’s vital that schemes settle their liabilities in as short a timeframe as reasonably affordable, while ensuring they keep the needs of their members front and centre.

“Given the increased demand for flexibility from members, pension transfers are a core part of the discussion.

“It’s crucial that companies encourage member engagement with their benefit options across the span of their career, and especially for employees approaching retirement.

“Providing access to impartial, professional advice from a qualified advisor is one way of ensuring that employees are making the decision which is most appropriate for their short, medium, and long-term goals. 

“For those running the scheme, timing is crucial.

“Those aiming to reach the endgame within five years need to focus on offsetting the liabilities ahead of an insurance buyout.

“Those working towards a longer horizon could see a more meaningful reduction to their endgame timescales following a transfer exercise, perhaps eighteen months or more.

“For these schemes, it may even be worth running more than one transfer exercise, so long as the gap between the two is long enough to reach a different group of employees and generate take up.”