Nearly one in 10 employees approaching retirement with defined benefit (DB) pensions would be interested in transferring out of final salary pensions, according to research by Towers Watson.
Its Attitudes to retirement in a post-Budget world research, which surveyed more than 2,000 employees aged between 54 and 64, found that respondents would be interested in exchanging most (7%) or all (2%) of a DB pension for a defined contribution (DC) pension pot that they can dip into as they wish.
A further 11% of respondents would be interested in exchanging half of their DB pensions and 24% would only exchange less than half of it.
The research also found that more than three-quarters (76%) of respondents want a guarantee that their money will last throughout their lifetime.
More than two-thirds (68%) of respondents are keen to protect their income from inflation and 57% of married respondents aim to have a pension pot that provides income for their spouse after their death.
However, only 28% of respondents would use the majority of a DC fund to buy an annuity.
Will Aitken (pictured), senior consultant at Towers Watson, said: “Prior to the Budget, hardly anyone was interested in exchanging their final salary pension, which was often deemed to be more generous and more secure, for a forced annuity defined contribution arrangement.
“Transfers will now become a mainstream choice which pension schemes need to cater for. For example, we’re now seeing DB schemes considering whether to include transfer values on all pension statements so that members approaching retirement can clearly see what their choices are.
“At the moment, this information has to be specifically requested, leaving many people with little idea what size of DC pot they could swap their DB pension for.
“Most employees interested in transfers ideally want to keep some DB pension, but schemes usually offer an all-or-nothing choice. In practice, this means that people with two DB pensions from different employers might keep one where it is and exchange the other for a DC pot.
“Transfers can only grow in popularity from their current, virtually non-existent levels, especially now that less tax will be due when unused DC pensions are passed down the generations.
“However, it would be foolish to predict a stampede to the exits. It is human nature to stick with what we have, and a secure lifetime income is not something to give up lightly.”