The Pensions Regulator today voiced concern that firms are encouraging employees to transfer out of defined benefit (DB) pension schemes and give up valuable entitlements.
The Pensions Regulator has drawn attention to increased use of transfer incentives and enhanced transfer exercises, designed to move risk away from employers to the individual. Advice on pension transfers between occupational schemes is not regulated. As the FSA warns in its advice for employees, ‘If things go wrong, you will not be able to use the complaints and compensation arrangements’.
David Norgrove, Pension Regulator chair, gave the following warning on transfers from DB schemes: ‘Trustees should start from the presumption that such exercises and transfers are not in member interests. If a company is willing to encourage the transfer, the company’s gain is likely to be the member’s loss.’
The regulator identified a number of worrying tactics that firms have been using to encourage employees to transfer out of existing schemes:
- the offer of advice paid for by the employer – on the condition that members take that advice
- excessive pressure to make a decision – with constant emails, phone calls, and even home visits
- the provision of misinformation, including a strong suggestion that the future of the scheme is at best uncertain and that it is in the interest of the member to transfer out; and
- putting excessive time pressure on members to make a decision – suggesting that there isn’t enough money to go around so members must move quickly to take advantage of the offer.
Drawing attention to FSA guidance, the Pensions Regulator warned that: ‘Where behaviours are particularly concerning, we may look to use our anti-avoidance powers.’
Commenting on the Regulator’s remarks, Which? Senior Researcher, Ian Robinson said: ‘We looked at this problem in October 2008 and warned readers to think carefully before giving up guaranteed pension benefits. If your employer makes such an offer you should take independent financial advice from a suitably qualified adviser.’
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