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 such as a cash payment in exchange for transferring accrued pension rights from a defined-benefit scheme to a defined-contribution scheme.
Webb held discussions with the Pensions Regulator and industry representatives this week 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. I am very concerned that people are making the wrong choices about their pensions.”
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, are inflation-linked and come with a spouses pension. There are many pension saving decisions that investors can make. However, when it comes to transferring out of a final-salary scheme, they should always seek independent financial advice.”
Affluent Financial Planning managing director Carl Melvin says: “I am 100 per cent behind Steve Webb on this. A lot of people who are desperate for money will just take the shortterm fix and not think of the long-term implications.”