Regulator fires warning on pension transfers

Operators of costly final salary pensions are being accused of offering overly-generous sums to savers leaving the 'gold-plated' schemes.
The Pensions Regulator (TPR) wrote to 14 schemes earlier this year to raise a number of concerns around increased levels of transfer activity - demanding the risks were better explained to savers.
It noted a spike in people leaving defined benefit (DB) schemes, where income is guaranteed, in return for a one-off lump sum payment.Rising costs mean DB pensions have become scarce in recent years, especially in the private sector, because people are living longer.They have largely been replaced by defined contribution (DC) pensions.TPR's letter was revealed by pension provider Royal London.Its director of policy, the former pensions minister Sir Steve Webb, said DB holders were in some cases being offered up to 40 times their annual pension as a lump sum transfer value.
Regulator fires warning on pension transfers

Steve Webb was pensions minister in the coalition government
Such an offer would deliver a lump sum of about €600,000 for a person with a final salary pension of €15,000.The majority of offers were significantly lower at around 25 times, he said.
He believed TPR was not only concerned about the potential for those taking the offer losing out in the longer term but also the damage such payments could inflict on a DB pension scheme or employer.Sir Steve said: "I would hope that well-run pension schemes would be taking expert advice when deciding how much to offer to members wishing to transfer out."But the regulator's letter is a helpful reminder to all schemes that they need to be fair not only to those transferring out but also those left behind, especially where the scheme in question is in deficit."A spokesman for TPR said: "Transfers from DB 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."Our primary concern is that DB scheme members requesting a cash equivalent transfer value have all the information they need to make an informed decision about what is in their best interests."This includes understanding the fees that are charged under any new pension arrangement as these can make a significant difference to the value of the fund.
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"As a result, we are working closely with the Financial Conduct Authority and The Pensions Advisory Service to provide an increased level of 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 members alerting them to the risks of transferring and giving practical information."
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