Pensions minister Steve Webb has called on businesses to stop offering “superficially attractive” incentives to encourage people to transfer out of defined benefit schemes.
The practice, known as incentivised transfers, involves people being offered a short-term benefit like a cash payment in exchange for transferring accrued pension rights from a defined benefit scheme to a defined contribution one.
Webb is holding discussions with The Pensions Regulator and pension industry representatives today to try and address the problem.
He says: “We urgently need to make sure we root bad practice out of the market. The industry cannot go on offering superficially attractive deals to people that ultimately leave them badly out of pocket.”
Hargreaves Lansdown pensions analyst Laith Khalaf says: “Final salary benefits are so valuable because they are guaranteed by the employer, have no investment or annuity rate risk and are inflation linked and come with a spouses pension.”
Webb said: “I am very concerned that people are making the wrong choices about their pensions and are missing out on substantial amounts of retirement cash.”
Khalaf adds: “There are many pension saving decisions investors can make themselves, however when it comes to transferring out of a final salary scheme they should always seek independent financial advice.”