Savers offered too much money to transfer out of DB schemes, regulator says

The Pensions Regulator (TPR) has raised concerns about pension savers being encouraged to leave defined benefit (DB) schemes which offer a guaranteed level of retirement income.

Rising costs mean that in recent years firms have been offering people large cash sums to transfer out of the ‘gold-plated´ schemes.

Earlier this year the regulator wrote to 14 schemes, highlighting increased levels of transfer activity and asking them to consider whether they are being too generous when offering cash lump sums to people transferring out of their DB pension.

A record £21bn was taken out of defined schemes in the year to March, BBC News reports.

However, such a decision should not be taken lightly as it could put savers in a worse financial position.

What´s more, if large numbers of members transfer out on generous terms there is a potential risk that the remaining members will not get their full pensions.

According to Royal London, which obtained a copy of the letter following a freedom of information request, people are routinely offered 25 to 30 times their annual pension as a lump sum transfer value — but some schemes have offered as much as 40 times.

A spokesman for the Pensions Regulator said: “Transfers from defined benefit schemes to defined contribution schemes are unlikely to be in the best interests of most members, although there are certain circumstances where they may be appropriate.”

The regulator is working with the Financial Conduct Authority and the Pensions Advisory Service to provide more support to trustees and scheme members where there is uncertainty around the future of a DB pension scheme. This includes providing letters for trustees to send to members, alerting them to the risks of transferring and giving practical information, the spokesman explained.

Posted on September 5th 2018

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