Advice firm Montfort International is estimating that only 15 per cent of the British Steel Pension Scheme (BSPS) members who are currently under pressure to decide what to do with their retirement nest egg should transfer out their defined benefit pension.
Around 130,000 individuals will have to choose to move their pension pots to a new plan being created, BSPS II, or stay in the current fund, which will be moved to the Pension Protection Fund (PPF).
From these, around 43,000 are deferred members, which means that transferring out their pension is also an option for them.
Transferring out is considered by the Financial Conduct Authority to be a highly risky - and irreversible - decision, as it means the pension holder giving up a lifetime's worth of guaranteed income.
According to Eugen Neagu, head of financial planning at Montfort, there are clear reasons why a pension transfer should not be recommended for most British Steel pension scheme holders.
Mr Neagu said: “Many of the steelworkers are healthy, some of them still have many years to retire, but what happens is that the trust in the defined benefit pension scheme system has been broken due to the reduction in benefits, and it seems each and every one of them want to transfer out now.
But according to pensions expert and founder of Pension Playpen Henry Tapper, who has visited Port Talbot to speak to the British Steel pension scheme members, there is little evidence of financial advisers suggesting anything other than transfers to them.
Due to concerns about this, the Financial Conduct Authority (FCA) has an ongoing programme of "visiting advisers in the Swansea area and Port Talbot area, reminding them that there are requirements” when advising clients to transfer their pension pots.
Transferring out of a defined benefit pension into a defined contribution scheme has soared in popularity as pension holders seek to take advantage of record transfer values, as well as the option to access their whole pot in one go under pension freedoms, which aren't available with DB schemes.
Mr Neagu said: “It is not suitable for many of them to transfer out because the stock markets are fully valued, the gilts yields are low, so the expected investment return in the future will be pretty low, and it is not guaranteed.
“They will still get guaranteed pension benefits from the new BSPS, although slightly lower.”
More than 7,000 members of the scheme have requested a transfer value quotation between April and September this year, with more than 700 requests totalling more than £200m being concluded or processed during that period.
After speaking with BSPS members, Montfort is estimating that a transfer will only be recommended to 15 per cent of the members.
This is based on the assumption that “the ones who are recommended to transfer out have health issues, or are very desperate to transfer because they have immediate liabilities such as repaying a mortgage to retire and unsecure loans,” Mr Neagu argued.
