Your Turn to Be a Lottery Winner with a Defined Benefit Pension Transfer?

The influx of defined benefit (DB) transfers has created a group of ‘lottery winners’, according to Standard Life’s head of pensions strategy Jamie Jenkins. Speaking at the Future of Life and Pensions event in London in June 2017, Jenkins said there are thousands of people who are now coming into vast pots of wealth because of DB transfers who never expected to have these pots of money.

“You have people now in their thousands, perhaps tens of thousands who have gone from a promise of an income in the future, and then suddenly moving that to a huge pot of money. Huge pots by most people’s standards, it could be £200,000, £300,000, some maybe even £1 million,” he said.

“Suddenly [they are] moving to a world of investment where they have all the risks and perils of investments. They are not moving for the reason that they want to take risks on the market, they want flexibility and various other things. You have an awful lot of people suddenly coming in to manage a big pot of wealth, and not used to it, almost like lottery winners.”

The scale of transfers going on was revealed by a recently published freedom of information (FOI) request to The Pensions Regulator which estimated that there were 80,000 DB transfers from 1 April 2016 to 31 March 2017.

Jenkins said many of those transferring will use some of the money to do things they wanted to do—for example, pay off a mortgage or a buy a car—but beyond that, they have not thought about what they would do with the money going forward.

“So I think we have a new quite immediate group, in its tens of thousands if not hundreds of thousands who have not gone through the [pattern] of building wealth through higher income and savings,” he said.

At Avantis Wealth, we are used to talking to clients who have great concerns about relying on stock market gains in the long term to protect their valuable nest-egg, and equally worried about investing in traditional fixed interest securities like government gilts. As I write this, 10 year government gilts are yielding just 0.91% annually.

So what other options are there for holders of large Defined Benefit transfer amounts, or other substantial cash funds? At Avantis Wealth we have developed the F.R.E.S.H investment strategy which focuses on investment in asset backed bonds and loan notes typically yielding 7% to 15% a year.

This is a far cry from the less than the typical 1% returns on fixed interest products, or the uncertainty of growth or income from stocks and shares.

As a simple example, if your F.R.E.S.H portfolio delivered an average 10% return on capital, a £100,000 investment will return £10,000 a year. In comparison, at 1% annual return you will receive £1,000 a year. We know from our clients that this can result in life-changing financial security and the ability to enjoy a far better lifestyle.

If you’d like to consider what benefits the F.R.E.S.H investment strategy can deliver inside a diversified portfolio, then please ask for our complimentary special report. Call us on +44 1273 447 299 or email and ask for your free F.R.E.S.H report.