If you are a pension saver with a defined benefit pension, you should treat with suspicion company initiatives to encourage you to transfer out of your pension scheme, in return for a lump sum.
Such lump sum offers, known as “enhanced transfers”, are increasingly common as companies strive to dismantle their highly expensive defined benefit pension schemes.
This was the message this week from the Pensions Regulator, at the National Association of Pension Funds (NAPF) Annual Trustee Conference in London.
“Trustees should start from the presumption that such exercises and transfers are not in member interests. If a company is willing to encourage the transfer, the company’s gain is likely to be the member’s loss,” said David Norgrove, chairman of the Pensions Regulator.
“Our stance is in line with the [Financial Services Authority] FSA’s guidance, which reminds firms that, in reviewing such financial promotions, they will start from the presumption that such transfers are not suitable.
Talk to a pensions expert
Mr. Norgrove emphasised the need for expert guidance to evaluate so-called ”enhanced transfer” offers. “What is often not explained or understood is that the term ’enhanced’ may be misleading, as the sum being enhanced may first have been heavily discounted.”
Strong-arm tactics
Reports have been made to the Pensions Regulator of companies using pressure tactics to secure employee acceptance of the enhanced transfer option.
These have included companies offering to pay for advice, harassment by email, phone and even home visits to speed a decision, and strong (false) suggestions that a scheme may soon be in difficulties and that it is better to ”get out now.”
A recent survey suggested that up to a third of employers with a defined benefit pension scheme may make enhanced transfer offers in the next 2 years*.
*Source: Survey of 171 UK defined benefit pension schemes by pensions adviser Hamish Wilson, 2009
