COVID-19 transfer warnings will be issued by pension schemes to savers
29 April 2020
The Pensions Regulator (TPR) has issued guidance which advises trustees to send Defined Benefit (DB) members, intending to move retirement funds, letters, to alert them to the risks of doing this during the outbreak of coronavirus, and to remind them to carefully consider the decision.
The letter should warn savers that a transfer from a DB to a Defined Contribution (DC) scheme is not likely to be in their best long-term interests at the current time.
Since 2015, pensions freedoms have allowed scheme members more flexibility in the ways in which they can access their pension. Last year alone, £34 billion was transferred from DB schemes, as many savers have made us of the new levels of flexibility.
TPR is acutely aware that COVID-19 is causing substantial market volatility and uncertainty for both business and personal finances and is concerned that pension members might be making rash decisions which could have negative consequences on their pensions.
The Pension Regulator’s Chief Executive, Charles Counsell, 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."
In response to the coronavirus pandemic, TPR has issued guidance to assist schemes and employers in dealing with emerging risks and has provided trustees with advice in relation to how to communicate with their members. TPR is urging trustees to take a number of steps, including:
- Highlighting the free, impartial pensions guidance from Pension Wise, including phone appointments and online information
- Encouraging members to take regulated advice to understand their retirement options
- Identifying 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
- Sending 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
- Monitoring CETV requests and informing FCA of unusual or concerning patterns, such as spikes or the same adviser across a multitude of requests
TPR is also aware of a range of pension scams which are having devastating effects for victims, who have lost, on average, £82,000 of their savings. TPR encourages trustees to follow the Pension Scams Industry Group code of good practice to help protect members and guard them against scammers.
The guidance includes steps on how to carry out due diligence and assess transfer requests. Letter templates for use when communicating with members through the transfer process are also available.
Savers should also be informed about the ScamSmart website, which will help them to protect themselves from falling victim to any pension scams.
The information in this article is accurate at the time of publication. For all the latest information, news and resources on how the COVID-19 pandemic is affecting payroll professions, visit our Coronavirus hub.