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December 11, 2009

Pension transfer incentives a threat to employees

by Gill Montia

Story link: Pension transfer incentives a threat to employees

The Pensions Regulator has called for greater scrutiny of transfer incentive exercises, and is warning trustees of the risks these pose to members of company pension schemes.

The credit crisis and recession has prompted many employers to review their pension provisions in efforts to reduce liabilities, particularly for Defined Benefit (DB) schemes.

However, the watchdog’s chairman, David Norgrove, insists that trustees should presume that transfer incentives are not in members’ interests, on the basis that a company’s gain is likely to be the member’s loss.

According to the regulator, reports have been made of a number of worrying tactics in the pensions transfer market including: the offer of advice paid for by the employer – on the condition that members take that advice, and excessive pressure on employees to make a decision.

In some cases employees have been misinformed and given the impression that the future of their current scheme is at best uncertain, and that it is in the interest of the member to transfer out.

Employees have also been subject to excessive time pressure to make a decision.

Mr Norgrove comments that in general, it is unlikely to be in members’ interests to transfer out of a DB scheme and goes on to warn: “Where behaviours are particularly concerning, we may look to use our anti-avoidance powers and we ask trustees to be vigilant in exercising their fiduciary duties.”

 

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