Pension savers warned against knee-jerk decisions to transfer out of schemes
Pension savers looking to move their retirement funds out of “gold-plated” schemes during the coronavirus crisis will be warned that it is unlikely to be in their best interests.
Warning letters will be sent to people looking to transfer from a defined benefit (DB) pension to a defined contribution (DC) scheme.
The Pensions Regulator (TPR) said that, with Covid-19 causing market volatility and an uncertainty for businesses and personal finances, pension members could be at risk of making knee-jerk decisions which hit their pensions.
DB schemes are often described as gold plated because they promise savers a certain amount of income in retirement, which could be based on their final or average salary.
With DC schemes, the saver bears the risk of how much income they end up with in retirement, depending on factors such as investment performance.
Under guidance published by TPR, pension scheme trustees are being asked to send DB members looking to move a letter warning them of the risks during the pandemic and urging them to consider the decision carefully.
Since 2015, the pensions freedoms have given over-55s with a DC pension more flexibility over how they access their money.
Many people have taken advantage of this flexibility and last year £34 billion was transferred from DB schemes to DC schemes and elsewhere.
Charles Counsell, TPR’s chief executive, said: “We are determined to do all we can to protect savers’ retirements from the unprecedented impact of Covid-19.
“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.
“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.”
Charlotte Jackson, head of pensions operations and consumer protection at the Money and Pensions Service, said: “Many people make decisions about their pensions without fully understanding all of the long-term consequences of their choices.
“The fallout from Covid-19 pandemic is putting significant additional pressure on people. As hard as it is, we urge people not to make any rushed decisions, and seek impartial guidance or advice about options open to them.
“They can contact the Pensions Advisory Service on 0800 011 3797 or those aged over 50 can book a Pension Wise appointment online. A small amount of time on a phone call with a pension specialist could make the key difference in helping people avoid decisions which unwittingly could hurt or put at risk the savings they have built up over their working lives.”
Gregg McClymont, director of policy at the People’s Pension, said: “The move by the regulator is to be welcomed.”