UK Pensions: Regulator’s warning that member transfer requests during the pandemic may be a poor decision

Adding to its already impressive haul of Covid-19 related publications to date, on 29 April 2020, the Pensions Regulator published further trustee guidance Communicating with members when they request a transfer or to access benefits.

Pension scheme members seeking a transfer from a defined benefit (DB) to a defined contribution (DC) pension during the Covid-19 crisis will be warned by trustees that such a move is unlikely to be in their best long-term interests. They are also reminded that where a DB transfer value is more than £30,000 and members want to transfer benefits to a DC scheme, they must take advice from an authorised financial adviser firm. In its new guidance, the Regulator provides a template letter for pension scheme trustees to send DB members, warning them of the risks of transferring funds during the pandemic and urging them to consider the decision carefully.

The Regulator’s concerns

The Regulator’s concerns are that with the current market volatility and uncertainty for businesses and personal finances, pension members could be at risk of making knee-jerk decisions that adversely affect their pension savings for the long term. The Regulator states that it is determined to do all it 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 serious one and members are urged to take extra care in the current climate.

The Regulator’s new warning letter is intended to make members stop and think. The current financial uncertainty around investments may influence them in reaching a decision to transfer or access their funds by retiring from the scheme when they wouldn’t otherwise have done so. This is a critical time for savers, and such irreversible actions would have a lasting impact on the member’s retirement income.

Trustee warnings to members

As well as sending all DB members requesting a transfer a template letter signed jointly by the Regulator, the Financial Conduct Authority (FCA) and the Money and Pensions Service, which runs The Pensions Advisory Service, the guidance calls on trustees to:

  • highlight the free, impartial pensions guidance from Pension Wise, including phone appointments and online information;
  • encourage members to take regulated advice to understand their retirement options;
  • identify increased risks in how a member has decided to access their pension funds and give appropriate warnings of the risks and implications of their chosen option; and
  • monitor transfer requests and inform the Financial Conduct Authority of unusual or concerning patterns, such as spikes or the same adviser across a multitude of requests.

Pension scams 

The Regulator says that the most recent figures show that victims of pension frauds lost on average £82,000, which represents some people’s entire life savings. Trustees are the first line of defence in protecting retirement funds and they have a key role in ensuring members make informed choices.

To guard against scammers, the Regulator sets out some practical steps for trustees in carrying out due diligence and assessing transfer requests, along with sample letters for communicating with members throughout the transfer process. It also suggests trustees should direct their members to the ScamSmart website to learn how to protect themselves from pensions scams.

 

 

 

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