UK savers can expect significant changes to the advice they get when transferring out of defined benefit (DB) pension schemes thanks to new rules introduced by the Financial Conduct Authority (FCA) last week.
That is according to a new report from consultants Lane Clark & Peacock (LCP), which outlines how pension savers will now be able to clearly see the value they could be losing by transferring.
The new rules require advisers to show how transfer values compare with the lump sums needed to buy the pensions their clients are giving up, with these clearly presented in a bar chart.
It was found that scheme members ten years away from retirement would typically be offered transfer values that are only around 55% of the full value of the pension they are forgoing.
The report highlights how transfer values vary considerably, ranging from 40% of the full value to more than 80%, and that this may "come as a surprise to some members".
"This does not necessarily mean that transferring is a bad idea, but it does show very clearly that those who transfer out are forgoing a great deal of certainty about their future retirement income, and that this certainty is of considerable value," LCP partner, Jonathan Camfield, said.
A survey of financial advisers by mutual insurer Royal London, which co-produced the report, found most agree that a comparison between two lump sums would be easier to understand than the old 'critical yield' concept.
Although some said telling a client they might only be offered around half the full value of their pension might put them off transferring, this is not expected to have a major impact on the volume of transfers.
However, it is thought that more clarity on the generosity of transfer values might prompt some trustees to change their policies, with some making less considerable offers, and others larger ones.
Royal London director of policy, Steve Webb, said: "If this new way of assessing transfer values results in better informed conversations with impartial financial advisers, this would be a good thing"
"With around 200,000 people having transferred out of a company pension in the last couple of years, it is vital they have a clear understanding of the advantages of transferring and the valuable benefits they are giving up."