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Retirement Transfer Option

We help our clients put in place an effective process to offer a transfer option to members on retirement. This offers the members additional options on retirement and can also help the company and trustees reduce cost and risk in the pension scheme.

Traditionally, defined benefit (DB) schemes have not offered transfers to members at the point of retirement and a member’s statutory right to a transfer ceases at normal pension age. Enabling transfers in the period just before retirement provides DB members with access to a wider range of retirement options, such as those available in defined contribution schemes. We work closely with clients to introduce the option for members to transfer their benefit at the point of retirement.

In particular, this option allows members to select benefits that suit their own circumstances including access to an Approved retirement Fund (ARF) drawdown facility.

In addition, members may be able to take a higher tax-efficient cash lump sum. Whilst not suitable for everyone, this flexibility is likely to be of interest to a significant number of DB scheme members. Trustees of DB schemes should, at the very least, make sure that their members are aware of these potential options.

A Retirement Transfer Option (RTO) involves actively engaging with members to help them understand all the options available to them – both within the DB scheme and outside of it – and then facilitating a transfer for those members who select this option. Typically members would simply be offered their normal cash equivalent transfer value and the RTO would be introduced as part of the ‘business as usual retirement process for active and deferred members approaching retirement.

There are many potential attractions with introducing an RTO for members at the point of retirement:

  • It can be a beneficial option for most companies and trustees as it reduces future volatility of pension costs
  • It can become part of the normal retirement process so is relatively straight forward to implement
  • It provides additional flexibility for DB members
  • It is likely to improve the statutory funding position of the pension scheme.

It is important when implementing a Retirement Transfer Option that members avail of Independent Financial Advice before proceeding with a transfer payment out of the DB Scheme. Willis Towers Watson can also facilitate provision of this advice through our large team of Independent Financial advisors.

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