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.”