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Steve Webb warns on incentives to transfer out of DB

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.”

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Comments

There are 2 comments at the moment, we would love to hear your opinion too.

  1. In 1984 British Airways offered me (and 34,000 others) a substantial sum of money, almost a year’s salary to leave my excellent, well-funded, fully inflation protected Airways Pension Scheme (APS). Along with 17,000 colleagues I declined the offer. No doubt Mr Webb would have applauded our decision to refuse the bribe and continue paying higher contributions for a better pension in the future.I am now drawing that pension.

    Last year Mr Webb’s government, without any prior consultation, retrospectively destroyed the pension provision that APS beneficiaries had prudently paid for over many years when it changed the index used to uprate our pensions from RPI to CPI. BA has reported that this has resulted in a transfer of benefit from BA pensioners to IAG shareholders of £770m. IAG is a Spanish company. What possible benefit is there to the UK deficit?

    The Association of British Airways Pensioners has made a 9 minute video of Jamie Bowden, former BA press spokesman, interviewing the 3 trustees who recently resigned from the APS board over the issue at http://www.youtube.com/watch?v=WuqkO9KvaPo

  2. Mike

    If the scheme has indeed “changed” its indexation basis then most likely there was never any promise of RPI increases to being with.

    The coalition government has been clear that no statutory override is being offered to pension schemes that guaranteed RPI increases (indeed this goes against general pension laws).
    http://www.professionalpensions.com/professional-pensions/news/1931029/industry-blasts-rpi-cpi-announcement
    http://www.professionalpensions.com/professional-pensions/news/1930952/webb-override-powers-schemes-switch-cpi

    Things will be a lot clearer once the unions have had their judicial review at the High Court.

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