WEALTH at work’s latest survey* with the Pensions Management Institute (PMI) has revealed that 80% of Trustees have concerns about their members not understanding the risks around transferring out of their defined benefit scheme.
Jonathan Watts-Lay, Director, WEALTH at work, comments; “As the research shows, defined benefit (DB) transfers and the risks pension scheme members face are high on the agenda for Trustees, with most having concerns for their members.”
He explains; “Assessing whether it is right to transfer is highly complex with multiple risks to consider around how to manage the money once transferred. For example, most people underestimate how long they will live and are not equipped to deal with market volatility or taxation. Scamming, particularly of the over 55s, is widespread and a lifetime’s savings can be lost in the blink of the eye. In fact, the XPS Pension Group highlighted that more than half (55%) of DB transfers in June indicated at least one warning sign of a scam.”
Watts-Lay adds; “Ensuring access to appropriate regulated financial advice is key, and a requirement for anyone looking to transfer a DB scheme over the value of £30,000. Many Trustees now facilitate access to trusted advisory firms having gone through a due diligence exercise. This should include checking qualifications of advisers, regulatory records of the firm, compliance processes e.g. compliance checks of 100% of cases, pricing structure, and experience of working with employers and Trustees. Ultimately, empowering members by providing them with access to appropriate support should lead to better outcomes for all.”
Tim Middleton, Director and Policy and External Affairs, Pensions Management Institute, comments;
“The Social Security Act 1986 (SSA 86) changed the nature of workplace pension provision, although much of its legacy is not remembered fondly. For the first time, employers could not make membership of their occupational pension scheme a condition of service and gave members a statutory right to transfer accrued pension benefits. At the same time, the Act created personal pension plans, whose providers were hungry for new business. As a consequence, millions of employees were inappropriately persuaded to transfer out of well-funded defined benefit occupational schemes in order to contribute to an inferior alternative. The personal pensions miss-selling scandal cost almost £12 billion in compensation costs and is remembered as one of the most serious regulatory failures within the financial services sector of the modern era.”
He warns; “Over thirty years later, the statutory right to transfer remains a cause of significant anxiety. Members are presented with a bewildering array of retirement options, and many of those options involve a pension transfer. Without the provision of appropriate support for members, we are perhaps on the cusp of a second major pensions transfer scandal.”
*WEALTH at work conducted a survey with the Pensions Management Institute (PMI) to investigate the concerns Trustees have for their pension scheme members in the run-up to their retirement and what support provisions they are putting in place. The survey received 63 responses from a range of Trustees which were completed online from June 2020 to April 2021. The full results can be viewed here: https://www.wealthatwork.co.uk/corporate/2021/06/21/overcoming-risks-retirement-2021/