The first quarter of 2020 began and ended with much volatility leading to many decisions being deferred.
One of these changes includes a minimum three-month freeze by The Pensions Regulator on transfers out of defined benefit schemes.
While the proposed measure is designed to protect individuals from playing with their pensions at a crucial time, opinion in the industry is divided on whether this will actually slow down transfers to defined contribution schemes. Why is that the case?
Guidance
The regulator published guidance at the end of March allowing DB schemes to delay by up to three months member requests to transfer out. But many commentators in the industry point out that the guidance is not mandatory and therefore question whether the measure will actually protect people from transferring out of their DB schemes.
Key Points
- There is a three-month freeze on pension transfers
- The FCA has also delayed its rules banning contingent charging
- The freeze on transfers could be bad news for people who need quick access to their money
Andrew Tully, technical director at Canada Life, says: “I think it’s very difficult to be sure how and when trustees will respond.
“While The Pensions Regulator is allowing schemes to delay transfers, it isn’t mandatory, so some schemes may decide to continue to allow transfers, while others may stop them for future requests.”
He adds: “Some may stop for all, including cases where transfer values have previously been quoted. It creates uncertainty for advisers, clients and schemes.”
Mark Barlow, partner at XPS Pensions Group, echoes this view. He says: “It is now clear that trustees have the option to temporarily suspend transfer values where they need to take advice around transfer value terms or put in place support for members.”
Mr Barlow expects some pension scheme trustees will consider suspending transfer values following TPR’s guidance, but most will be comfortable in continuing to quote this option to members.
“The funding positions of many of our pension schemes have been reasonably well-protected against this recent downturn and so have been able to continue quoting transfer values as normal. Only around 20 per cent of our clients have suspended transfer value quotations, so we don’t believe there will be a wide-ranging market impact from this.,” he adds.
Impact on furloughed employees
Some in the industry highlight that transferring out of DB schemes may be beneficial for those who are in dire need of money, including vulnerable clients or those who are facing the prospects of being furloughed as a result of this crisis.
Penny Cogher, pensions partner at Irwin Mitchell, says: “If [furloughed employees] stay in the DB schemes, they may not be able to access [the pension funds] without the trust’s and employee consent.”
“They might have wanted to go ahead with the transfer to a DC scheme because they are worried about the dependant’s pension as some DB schemes are limited... some may not recognise who gets a spouse’s pension on the death of a member,” Ms Cogher adds.
