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May 22, 2011 11:32 pm
Employers face renewed scrutiny in regard to their use of cash incentives – of up to tens of thousands of pounds – to persuade final salary scheme members to give up generous benefits.
Steve Webb, pensions minister, will today tell a meeting of important pension industry representatives to “root out” the practice, by which members are offered “superficially attractive” inducements to move into less generous defined contribution plans.
The intervention takes place six months after the Pensions Regulator was forced to strengthen its guidance about Enhanced Transfer Value exercises, amid concern at the troubling pressure tactics used by employers. Use of ETVs has become more popular as final salary, or defined benefit schemes – most of which are in deficit – struggle to contain future liabilities.
But the regulator, which is attending Monday’s meeting with the minister, says that most people are better off to stay in DB schemes.
Use of cash incentives is not illegal. However, the pensions minister is said to have been angered and worried by reports of members being offered cash lump sums, immediately before Christmas, to transfer.
There is also concern about more use of Pension Increase Exchanges, by which members are offered an immediate pension increase if they give up future inflation-linked rises on their income. Such deals could cut purchasing power by a fifth during 20 years.
“I am very concerned that people are making the wrong choices about their pensions and are missing out on substantial amounts of retirement cash,” Mr Webb said.
“The industry can’t go on offering superficially attractive deals to people that ultimately leave them badly out of pocket.”
The government did not provide any figures about how many individuals had accepted transfer incentives. But with about 7m people still saving in DB schemes, it is said to be concerned by indications that up to 80 per cent of people who are advised not to take an offer ignore it.
Pension advisers believe the government’s recent liberalisation of pension rules might be fuelling use of transfer sweeteners.
“Transferring out might look [to be] more appealing – but my concern remains [that] many [people] don’t fully understand the valuable benefits they could be giving up,” Ros Altmann, director-general of the Saga group, said.
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