Warning on flexible pensions

Savers in final salary pension schemes are being warned to beware new options to transfer into “flexible” retirement plans, which may not be in their best interests.

The warning comes as the some of the country’s biggest employers prepare to offer pension scheme members a new option to swap part of their final-salary linked income for a lump sum. By doing so, employers can help members of final-salary, or “defined benefit” (DB) schemes move into flexible drawdown – a new type of personal pension with no income withdrawal limits.

While this strategy could benefit some, there are concerns that employers who want to reduce their pension liabilities might be too keen to promote this option to their members.

“We would emphasise the importance of schemes not incentivising members to transfer out and ensuring their administration of such transfers is absolutely watertight,” said The Pensions Advisory Service, the independent body. “Last year, our helpline had 5,026 calls from members whose schemes had made administrative mistakes.”

The move to allow partial transfers follows a clampdown by the Pensions Regulator on the use of cash incentives and enhanced transfer values to encourage members to leave DB schemes.

The regulator was forced to tighten its guidance after seeing “worrying” cases of members put under “excessive” pressure or given inaccurate information.

Advisers said most people would be better off remaining in DB schemes, as they offer index-linked income and spouse’s death benefits.

“I definitely think that the regulator should keep a close eye on how such schemes are implemented and alert trustees to be on guard too,” said Dr Ros Altmann, head of Saga Group and pensions adviser.

The regulator said: “Whenever a member is faced with the option of transferring benefits from a DB scheme to a defined contribution scheme, it is important that they understand the consequences of the offer and take advice.”

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