The Pensions Regulator (TPR) has today asked trustees to warn savers that transferring from a defined benefit (DB) to a defined contribution (DC) pension scheme during the COVID-19 crisis is “unlikely to be in their best long-term interests”.
According to new guidance, “market volatility” and an “uncertainty for businesses and personal finances” could influence savers to make “knee-jerk” decisions about their pensions.
Trustees of DB pension schemes will be asked to write to members requesting a cash equivalent transfer value (CETV), warning them to be “very, very careful making any transfer decision at this time”.
The Pensions Freedoms act, introduced in 2015, gave savers more flexibility in how they could access their pension. This resulted in some £34 billion in cash being transferred out of so-called “gold-plated” DB schemes for tax, inheritance and health reasons, while others were worried about the solvency of the sponsoring employer.
However, the Covid-19 crisis may cause some savers to panic about their finances and potentially make ill-informed decisions about their hard-earned savings.
The new guidance will call on trustees to encourage members to take regulated advice, identify increased risks in how a member has decided to access their pension funds and give appropriate warnings of the risks and implications of their chosen option.
Warning savers, TPR Chief Executive Charles Counsell said: “A decision to transfer a pension pot that’s taken a lifetime to build is a very serious one and we’d urge members to be very, very careful making any transfer decisions at this time.
“That’s why for the foreseeable future, anyone who is looking to transfer their benefits out of their DB scheme should be sent a new warning letter to make them stop and think.”