Pension regulator issues coronavirus transfer warning
The Pension Regulator is issuing new guidance to pension trustees as coronavirus scares savers
The Pension Regulator is issuing new guidance to pension trustees as coronavirus scares savers
The Pension Regulator (TPR) has released guidance for pension trustees that they should warn and provide a written letter to pension members who are considering moving from a defined benefit (DB) to a defined contribution (DC) pension scheme.
“A decision to transfer a pension pot that’s taken a lifetime to build is a very serious one and we’d urge members to be very, very careful making any transfer decisions at this time,” said TPR’s chief executive Charles Counsell.
“That’s why for the foreseeable future, anyone who is looking to transfer their benefits out of their DB scheme should be sent a new warning letter to make them stop and think as well as point them towards free, impartial guidance available from The Pensions Advisory Service.”
Transfers from DB to other schemes like DC amounted to £34bn in 2018/2019. The TPR is concerned people may make short-sighted decisions as coronavirus wrecks havoc on the global economy. With today’s announcement anyone considering moving from a DB to DC scheme will receive a letter warning them of the long-term consequences of withdrawing from a DB scheme.
“The regulator is a little bit concerned that members may have some sort of knee-jerk reaction, given what’s on in the market or even their own personal circumstances, says Vassos Vassou, professional trustee at Dalriada Trustees.
“For example, people who have been furloughed or lost their job they may think, ‘well wait a minute, I can transfer my pension assets, and therefore get access to them a little bit earlier than I would have done otherwise’. What the regulations saying is that might not be a good long-term decision.”
For the vast majority of people in a DB scheme, Vassou says they are better off staying within in the scheme than switching to DC.
“There is not really a good reason for the majority of people to switch. DB schemes provides a secure pension benefit when someone gets to retirement age. Whereas a DC, you have to take investment risk, and you have to know what you’re doing to make it work.
“90-95 percent of the population are in the position where it’s probably better to leave your pension scheme where it is. There might be a small proportion of the population, where moving your pension around to DC might be a bit more tax efficient. But I think those sorts of situations are quite rare and few and far between.”
TPR is also concerned that pension holders may fall victim to scams, given the current heightened level of anxiety. According to the TPR the average pension scam claims £82,000.
Francis Fernandes, senior advisor to Lincoln Pensions says that fraudsters may try to frighten members into withdrawing from their schemes given the economic uncertainty.
“Transfers from DB to DC arrangements can be appropriate in certain circumstances – for example to enable individuals to draw forms of pension better reflecting their own personal circumstances such as health, marital status, overall financial position,” he says.
“However, they should always seek advice and not rush the decision. In these uncertain times when some might look to exploit worried individuals, TPR is right to remind DB members about the potential dangers and the help available.”