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Govt warned over bulk pension transfer risks

Providers need “buy-in” from the Government, regulators and the industry before considering bulk transferring members out of old, high charging schemes, a major insurer has said.

Speaking to journalists at a event sponsored by the firm, Scottish Widows chief executive Toby Strauss warned providers risk being sued if they try to move large numbers of members into newer schemes.

He said: “There are risks in bulk moving people, they could come back and say that was the wrong decision.

“The problem is nobody will act because there’s a risk of getting it wrong. But all we can do as an industry is to try and figure out what the best answer is and go back and it would help a lot if there was a degree of buy-in from regulator, DWP and Treasury.”

Strauss added the difficulty was moving customers who had valuable guarantees embedded in products.

He said: “It would be mad to move those customers with guarantees out of those products, they’d sue us. They’re loss making to use, I’d love to move them out, but they’d sue us.”

An ABI-commissioned audit of high-charging pension schemes found up to £26bn of assets are subject to charges over 1 per cent, above the 0.75 per cent auto-enrolment charges cap, prompting calls for Government intervention.

When the report was published in December 2014, pensions minister Steve Webb said he was “genuinely shocked” and would be pushing providers to come up with “big, bold solutions”.

Webb said he has spoken to providers who are open to the idea of bulk transferring members but that they are wary of regulatory action if members complain but he said simply lowering charges was not the answer.

He said: “The obvious thing is to say it’s an old pension scheme with a high charge, just reduce the number.

“But actually what we probably want as well as that is the money in the shiny new platform with the modern investment strategy. And even if providers drop their charges to below 1 per cent and out of the scope of the audit, that could still be higher than the 0.75 per cent charge cap. 

“My question is do we as Government enable providers to – rather than wait for the individual consumer who wouldn’t know a high charging scheme if it hit them in the face – do what we think’s best for the vast majority, just as we do with auto-enrolment?”

Webb said he was nervous about using terms like “safe harbour” but that he was “always open to suggestions”.

At the same event Strauss revealed the firm was hiring 400 extra staff to deal with the “April surge” expected as savers have greater access to their pots, following the pension reforms.

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  1. Why do bulk transfers, surely it would be as easy to simply reduce the charge on the current policies or is that just too simple?

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