Talking head: Ros Altmann argues for a £5k-£10k threshold for non-advised DB transfers-out, and says it is vital that members receive proper advice to understand the value of the benefits they are rejecting.
It is also right that the government has recognised the need for impartial at-retirement guidance, with extra consumer protections that require pension companies to ask relevant questions and issue clear risk warnings before customers make irreversible decisions.
Such safeguards are important to help people use their defined contribution pension savings sensibly.
It is worrying, however, that such safeguards seem to have been abandoned for members of defined benefit schemes, which have hitherto been stringently protected.
By increasing the threshold to £30,000 for non-advised transfers from DB to DC, members are at serious risk.
A pension worth £30,000 – with inflation and spouse protection and possibly life cover – should not be given up lightly. A cut-off of £5,000 or £10,000 would be more reasonable
With the sharp rise in pension deficits caused by artificially depressed bond yields resulting from quantitative easing, trustees and employers would generally welcome a reduction in liabilities from members transferring out, to reduce the pressures on sponsoring employers.
This could significantly improve scheme funding and enhance the security of the benefits of remaining members.
But this should not override trustees’ duties to protect all members’ interests.
Duty to inform
A pension worth £30,000 – with inflation and spouse protection and possibly life cover – should not be given up lightly. A cut-off of £5,000 or £10,000 would be more reasonable.
It would still allow schemes the opportunity to get rid of members with small deferred entitlements, while the amount of pension given up – only a few pounds a week – would hardly be life-changing in retirement.
Just as it is important to give DC scheme members guidance and risk warnings, it is vital that DB members receive proper advice, to ensure those considering transferring out do actually understand the value of the benefits they are rejecting.
Members who have very large debts, other pensions or are seriously unwell or single, may feel the value of the cash to them exceeds the value of the DB pension.
This is of even greater concern when transfer values reflect scheme underfunding – I have seen estimates of transfers worth just 60 per cent of the value of an equivalent annuity.
Surely trustees or employers should have a duty to explain this to members, clearly telling them how they could be losing out by transferring?
It is difficult to understand why the government has suddenly abandoned the protection of DB scheme members’ pensions and I hope trustees will ensure their members are not left without the advice they need before transferring.
Ros Altmann is the government's older workers champion
