Coronavirus: Watchdog warns against DB to DC pension transfers

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Savers looking to move from a defined benefit (DB) to a defined contribution (DC) pension during the Covid-19 crisis are to be warned against it in a letter from regulators.

Under guidance published by the Pensions Regulator today (29 April), trustees are asked to send DB members looking to move retirement funds a letter warning them of the risks during the pandemic and urging them to consider the decision carefully.

Trustees recognise the pang of anxiety associated with members requesting transfers when our own instincts are telling us the transfer may not be in their best interests” – Vassos Vassou, Dalriada Trustees

Since 2015, new freedoms have given scheme members more flexibility in how they can access their pension and last year £34bn was transferred from DB schemes.

Market volatility caused by the coronavirus and uncertainty for both business and personal finances, pension members could be at risk of making knee-jerk decisions which hit their pensions.

Charles Counsell, the Pension Regulator’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.”

Vassos Vassou, professional trustee at Dalriada Trustees, said: “Most trustees already highlight the risks to members of transferring and provide details of where they can get help with advice. Trustees recognise the pang of anxiety associated with members requesting transfers when our own instincts are telling us the transfer may not be in their best interests.

“The additional material the regulator is asking trustees to include in the information provided to members will provide sense and balance for members before they proceed with a what could be a life-changing and potentially devastating decision.”

The Pensions Regulator has issued guidance to help schemes and employers deal with emerging risks and how trustees should be communicating with their members.

In today’s guidance, the regulator is calling 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.
send all DB members requesting a cash equivalent transfer value (CETV) a template letter signed by TPR, the Financial Conduct Authority (FCA) and the Money and Pensions Service, which runs the Pensions Advisory Service.
monitor CETV requests and inform FCA of unusual or concerning patterns, such as spikes or the same adviser across multitude of requests.