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Experts warn ‘reckless’ Govt over flood of DB transfers

Pension experts have warned about “reckless” Government encouragement for savers to transfer out of defined benefit pensions into defined contribution schemes to access new freedoms.

Cass Business School Professor David Blake, who is heading a Labour taskforce into pensions, warns transfers out of DB could see money pouring into buy-to-let.

Hymans Robertson estimates up one-third of those in DB schemes at retirement could transfer to DC to take advantage of new freedoms next April.

Providers have expressed alarm at possible “insistent” DB transfers who want to transfer to a DC pot despite being advised not to do so. But pensions minister Steve Webb told Money Marketing last week providers should not block individuals who want to do so.

The Association of Consulting Actuaries said banning DB transfers would have put the UK at a “commercial disadvantage”.

Professor Blake says: “I was particularly interested in the reaction of the ACA which came out immediately in support of the proposal to allow pension transfers from DB to DC.

“If members did this, they would have transfer values that were reduced to allow for any scheme deficit. 

“If all members did this – either by choice or at the suggestion of the employer – then, of course, the pension deficits would disappear.

“At the same time, more than £1trn of funds would either end up in buy-to-let or sit in bank accounts  – subject to just £85,000 credit protection. We will be living through interesting times next year.”

Hargreaves Lansdown head of pensions research Tom McPhail says: “We are into Tea Party territory. The way the Government has so enthusiastically championed pension freedoms, not just for DC members but DB too, they seem to have an issue with any form of guaranteed income. I find it reckless. This is a bunch of politicians desperate to look after their job security.”

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Comments

There are 9 comments at the moment, we would love to hear your opinion too.

  1. I posted a similar comment in another publication earlier, so apologies for any repetition…

    By definition it is true in that it has been mandated that for DB transfers with a value in excess of £30k, advice will be required. Judging by recent research from Towers Watson and Hymans Roberston, somewhere between 10% & 30% of eligible DB members have stated that they would be interested in taking advantage of the new pension flexibilities. That’s a lot of people! My question is – who is going to provide that advice?? A recent discussion with a senior underwriter at a large PI insurer put me in no doubt that they have very serious reservations regarding providing cover in this area. Their concern being quite simple – what will the mindset of the FOS be a few years down the line when the inevitable complaints come in when a retirees money has run out? You can have the most robust advice methodology going, but if you can’t get PI cover – game over….

  2. On what basis can it be fair to allow DC members to have access to their funds with freedom at retirement and not allow the same freedom to DB members?
    Granted it may be foolish of them to transfer away but they do have the choice not to transfer away too.
    Can the industry not find a way to come to terms with the freedom allowed and guide members into making an appropriate choice.

  3. Couldn’t agree more with Prof Blake and Tom McPhail. This could shrink the bulk annuity market too.

  4. “At the same time, more than £1trn of funds would either end up in buy-to-let or sit in bank accounts – subject to just £85,000 credit protection. We will be living through interesting times next year.”

    What a load of total nonsense. You may as well say £1tn will end up stuffed down the back of sofa’s. Clearly you don’t need too deep a understanding of your subject to become a professor!!

    The more likely scenario is that £1tn of funds will find it’s way into SIPP and drawdown products where it will provide a boost to the stockmarket, commercial property funds, bond funds and government gilt funds.

    I suspect if he’d said that no one would have bothered to write an article.

    HL should know better too. Maybe the government should restrict all investment freedoms – How does your business look now??

  5. Quietly resigned 27th October 2014 at 5:07 pm

    I remember a time when the Govt and to a degree the banks took steps to curb spivvy commission hungry sales people. That’s going back a bit.

    Now we have the advisory sector having to cope with an opportunistic, irresponsible Govt with little understanding of what they are doing, and a banking sector that has frankly run amok. All very odd.

  6. Is there any robust body of evidence to suggest that significant numbers of DB Scheme members are likely to want to do this? Or is it just scaremongering because they could? I think most advisers would/will reject categorically any DB Scheme member who want to make such a move against all advice to the contrary.

  7. I had a case referred to me last week, wanting to transfer a GMP to a SIPP and put all his retirement fund into a commercial property, with 50% borrowing. He had no experience and no other assets. An argument followed about the rights and wrongs of letting him do what he wanted.

    My view is that insistent and execution only does not exist in DB transfer world, a long chat with the FCA confirmed that view, when it all goes pearshaped the FOS will find against the adviser regardless of any disclaimers. We are not order takers, we give advice, if a potential client ignores my advice then there is no basis for an ongoing relationship.

    If we the Pension Transfer Specialists and the providers show a united front and turn these chancers away, the problem will not exist. If the Government want it to happen, will they stand as PI insurer of last resort?

  8. The answer is that if you are an adviser you provide advice whether good or bad for the clients personal wishes, what you don’t do (unless you want to leave yourself at severe risk of complaints and compensation) is simply tick up what a client wants to do. I recently had a client come to me wanting to transfer from an existing DC scheme to his personal pension, he was most insistent. On checking the facts unsurprisingly all factors including performance and charges were more advantageous where he was. We recommended he did not transfer. He was most offended (and when we had discussed likely fees at outset felt we should undertake it “for a couple of hundred pounds at most”).

  9. I imagine most advisers faced with anyone wanting to transfer from a DC scheme to just about any other type of pension plan/scheme will give them a very wide berth.

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