THERE was a marked increase in the number of people seeking to transfer the cash out of their final salary pensions in 2016.

Indeed, technology provider Origo, which facilitates such transfers for over 90 brands, recorded a 19 per cent rise in the amount of money flowing out through its service during the year. Starting at £17 billion in 2014, the total amount it facilitated rose to £21bn in 2015 and £25bn last year.

This is partly a reflection of rules that came into force in 2015 that allow over 55s to cash in their money purchase pensions rather than being forced to buy an annuity with them. As the rules do not apply to final salary schemes, anyone wanting to take advantage of the change would have to transfer their final salary pot into a money purchase scheme first.

There is another driver for the increase, though, with the transfer values applied to final salary pots soaring in 2016.

“Transfer values are the cash equivalent of the amount a pension scheme would need to honour the benefits of a member in the future,” said Jason Hemmings, a partner at Cornerstone Asset Management.

“In calculating the value of those benefits the [employer that funds the scheme] has to use various assumptions and some of those are based on long-term gilt yields. Those have fallen so today the money required to meet that obligation in the future is higher.”

Gilts are UK Government bonds and yields are the income they pay. Yields fell during 2016 over concerns about the strength of the UK economy in the wake of the Brexit vote. While this was bad news for final salary pension schemes, whose deficits rise when gilt yields fall, the impact on transfer values was positive.

According to Xafinity Consulting, a 64-year old final salary scheme member who is entitled to an inflation-linked pension of £10,000 a year from the age of 65 would have received a valuation of £234,000 at the end of December 2016. A year earlier the same person would have been offered £203,000, a difference of 15 per cent.

While gilt yields have driven much of the rise, VWM Wealth chief investment officer David Thomson said a number of companies are enhancing the sum even further as a means of enticing pensioners into taking their cash out.

“Companies remain very keen to get that liability off their books,” he said.

“Some companies are providing enhanced transfer values. It varies from company to company but can be between five and ten per cent. On a decent pension pot that can translate to hundreds of thousands of pounds.”

That companies would want to offload some of their pension liabilities in this way is understandable given that figures from accountancy giant PwC showed that UK pension deficits rose by £90bn to £560bn during 2016. Faced with having to plough ever-greater resources into their schemes in order to honour their promises it makes sense that they would want to buy out some of those liabilities.

However, as Mr Thomson noted that a transfer automatically shifts all of the risk of ensuring the pension pot lasts a lifetime onto the individual, who will be responsible for investing the money in such a way that it provides a long-term income, is it worth the risk?

Mr Hemmings noted that while the default position should always be to leave final salary pensions alone in order to preserve the guaranteed benefits, in some instances transferring could be beneficial.

“We had someone who was very ill - they had a life expectancy of six years, and they didn’t have a partner,” he said. “The value of their pot was over £1 million and if they didn’t transfer it it would be lost.”

For Kate Smith, head of pensions at Aegon, the ability to pass on some pension wealth could be attractive for some pensioners, with the value of a final salary pot dying when the final beneficiary – either the pensioner or their spouse – dies.

“[Money purchase] death benefits are more flexible because one of the new rules lets you leave benefits to beneficiaries but also to nominees,” she said. “If you’ve never had children and are single that can be quite important.”

Another situation where a transfer may be attractive is if the scheme member is concerned about the survival of the sponsoring employer. As the case of BHS showed, long-standing firms can go out of business and if their pension scheme has a large deficit the pensioners have few means of redress.

Although the Pension Protection Fund (PPF) will match the benefits of those already drawing their pension, for those yet to retire the PPF caps payments at 90 per cent of £37,420 a year. Transferring into a money purchase scheme could result in a higher sum, depending on how it was invested.

However, as Ms Smith stressed, anyone thinking of going that route must go in “with their eyes wide open”.

“You’re going to lose a guaranteed income. You’ll take on the longevity and investment risk. There’s a risk of doing the wrong thing, a risk of a stock market crash,” she said.

Having weighed up the risks, if anyone does want to transfer their pension they will need to take action fast. Not only did Mr Hemming stress that transfer values are only valid for a three-month period post-calculation, but Mr Thomson pointed out that yields may be back on an upward path, meaning the era of inflated transfer values could be coming to an end.

“It may be that we are at a turning point in gilt yields and this is as close as it is going to be to as good as it gets,” Mr Thomson said.