Defined Benefit Pension Transfers too generous warns Pensions Regulator

Piggybank representing pension transfer lump sum - Photo by rawpixel on Unsplash

Defined Benefit pension transfers maybe too generous warns The Pensions Regulator, placing Defined Benefit pension schemes, scheme members and employers at risk.

There has been much in the news recently regarding a letter issued to 14 pension schemes by The Pensions Regulator (tPR). The letter states the pension schemes may be too generous with their pension transfer lump sum offerings (CETVs) to members wanting to transfer out of their Defined Benefit (DB) pension schemes.

Sir Steve Webb, director of policy at Royal London who obtained the letter following a freedom of information request, said there was particular concern where the pension scheme itself was in deficit or the employer was regarded as financially vulnerable. If large numbers of Defined Benefit members transfered out because of the generous cash sum on offer then the funding position of any vulnerable scheme could decline and the remaining DB scheme members would potentially be at risk of not receiving their full pension in the future.

The letter has been sent out to 14 pension schemes all with a noticeable increase in transfer requests from it’s members, though it is not calling on all schemes to consider cutting back on pension transfer values.

The information above has been taken from the BBC news article: Pension transfers ‘too generous’ says Regulator – BBC

The value of pensions and the income they produce can fall as well as rise. You may get back less than you invested.

Transferring out of a Defined Benefit scheme is unlikely to be in the best interests of most people.

Capital at risk, investments can go down as well as up. You could be giving up guaranteed index-linked pension benefits if you do transfer.  Defined benefit pensions are secure. If you transfer to a Defined Contribution scheme you will be taking on the investment risk yourself. If you take your entire pension fund early you could be financially worse off in the future.