Ford set to offer partial transfer option to members

Kim Kaveh reports...

Ford today introduces the all-new Focus car for global customers, featuring the latest advanced and affordable technology with more comfort and space and a better fun-to-drive experience.

Motoring giant Ford has agreed to offer members of its UK defined benefit (DB) scheme the right to partially transfer their pension.

The £12.9bn Ford pension scheme will implement a 50% cash equivalent transfer value, based on 50% of an individual’s pension and 50% of the maximum tax-free cash. This will be available for its 8,500 active employees at the point of retirement.

The company said it was introducing this option partly due to Freedom and Choice, with a spokesperson noting the company was “very aware” that the option for employees to take the full value of their pension as a cash lump sum was a “big change” to UK pensions.

According to a Lane Clark and Peacock (LCP) and Royal London report unveiled last year, just 15% of schemes offer partial transfers, but industry support continues to grow. Earlier this month, XPS Pensions Group said partial DB transfers are easier than trustees think, and that all schemes should offer them.

The option is considered a middle way for members seeking to convert their DB entitlement into a defined contribution (DC) in order to use the pension freedoms to cater for urgent and immediate needs, without losing the entirety of their guaranteed income.

Ford and its unions were concerned its employees may be exposed to significant risks if only a full transfer option was available.

“For example, the risk of employees making incorrect decisions, receiving bad advice, and running out of pension savings,” the spokesperson said.

“As a result, Ford set up a joint working party with union representatives to understand the risks and identify solutions to help Ford employees. The working party agreed a few solutions to address these concerns – in which partial transfers was one of them.”

Other solutions considered to help educate employees were increased communications and an online- and paper-based service. The company has now said that it hopes to implement partial transfers “soon”, with final stages of implementation underway.

Hymans Robertson head of member options Ryan Markham said this option can offer the “best of both worlds” for members – guaranteed income to meet essential living costs and some flexibility to support varying lifestyle needs.

“It therefore reduces the key risk of members running out of money in old age,” he said. “Administrative complexity is proving a barrier to more schemes not offering partial transfers but what Ford is proposing isn’t overloading members with options and is therefore simple enough to administer.

“Partial transfers have a valuable role to play in giving good choice to members, especially those who have earned a large proportion of their benefits in a single DB arrangement.  I expect this will be a popular option for Ford members and that other schemes will be keeping a close eye on this.”

Introducing partial transfers was welcomed by 75% of the 450 XPS conference attendees earlier this month. This complements a joint report by Royal London and LCP last year which argued partial transfers should be a “legal right”.